## Facts

- About one month before filing a Chapter 7 petition, Patrick and Shana Buttke (the debtors) bought a 2004 GMC Envoy.
- The purchase funds came from William Buttke.
- When the vehicle was titled in the debtors’ names, William was listed as a lienholder on the certificate of title and on the application for a new title.
- The debtors and William never signed any separate document granting William a security interest in the vehicle, and William did not have possession of the vehicle as a substitute for a written security agreement.
- After the debtors filed bankruptcy, William took the vehicle and had it titled in his own name.
- The Chapter 7 trustee, Forrest C. Allred, filed an adversary proceeding against William seeking a determination that William had no valid lien, turnover of the vehicle (or its value) to the estate, and $250 in damages for violation of the automatic stay.
- The trustee moved for summary judgment, and William argued his lien was valid because he was identified as lienholder on the title paperwork.

## Issues

1. Whether, under South Dakota’s version of U.C.C. Article 9, a lien notation on a motor-vehicle certificate of title (and title application) creates an enforceable security interest when the parties never executed an authenticated security agreement and the lienholder lacked debtor-authorized possession.
2. If no enforceable security interest existed, whether the vehicle was unencumbered property of the bankruptcy estate subject to turnover (or value recovery) by the Chapter 7 trustee.
3. Whether William’s post-petition taking of the vehicle and retitling it in his name violated the automatic stay, and whether the trustee was entitled to damages.

## Decision

- The court granted the trustee’s motion for summary judgment.
- The court determined William did not hold a valid, enforceable security interest because the requirements for attachment/enforceability were not met in the absence of a security agreement (or qualifying possession).
- The court held the GMC Envoy was property of the bankruptcy estate free of William’s claimed lien and was subject to turnover to the trustee (or recovery of its value).
- The court found William’s post-petition repossession and retitling constituted an act to exercise control over estate property in violation of the automatic stay and awarded the trustee $250 in damages.

## Legal Principles

- Under Article 9 as enacted in South Dakota, a security interest is enforceable against the debtor and third parties only if it attaches, which generally requires (among other elements) an authenticated security agreement that reasonably describes the collateral, or possession of the collateral pursuant to the debtor’s security agreement.
- A lien notation on a motor-vehicle certificate of title serves as a method of perfection/notice for an existing security interest, but it does not by itself supply the debtor’s grant of a security interest required for attachment.
- When a claimed vehicle lien fails for lack of an enforceable security interest, the vehicle is property of the bankruptcy estate under 11 U.S.C. § 541, and the trustee may seek turnover of the vehicle (or its value) under the Bankruptcy Code’s turnover remedies.
- A post-petition repossession and transfer of title of estate property is an act to obtain possession of, or exercise control over, property of the estate barred by 11 U.S.C. § 362(a), and the court may award damages for the stay violation.

## Conclusion

In re Buttke held that a person listed as a lienholder on a vehicle title does not have an enforceable Article 9 security interest without a separate security agreement (or qualifying possession). Because William Buttke lacked an enforceable lien, the GMC Envoy was unencumbered property of the Chapter 7 estate; the trustee was entitled to turnover (or value), and William’s post-petition seizure and retitling of the vehicle violated the automatic stay, supporting a $250 damages award.


In re Buttke, 2012 WL 529241 (2012)