## Facts

- Maplewood Bank & Trust held a first purchase-money mortgage on Edward and Terre Capers’ residence, securing an original debt of $121,000, recorded in October 1988.
- After the mortgage, the Capers bought and installed a new kitchen from Sears, Roebuck & Co., and granted Sears a purchase-money security interest in the kitchen fixtures.
- Sears filed a financing statement in May 1989 giving notice of its security interest for $33,320.40.
- The Capers later granted a second mortgage to New Jersey Savings Bank, recorded in August 1989.
- The Capers defaulted on obligations to Maplewood and Sears.
- Maplewood filed a foreclosure complaint in November 1990 and later amended it.
- Sears answered and counterclaimed, seeking a declaration that its fixture PMSI had priority over Maplewood in funds generated by the anticipated foreclosure sale and requesting payment of its debt from those funds.
- The trial court struck Sears’s answer and counterclaim, the matter proceeded as an uncontested foreclosure, and final judgment of foreclosure entered in February 1992.
- Sears appealed only the dismissal of its counterclaim, pressing its claim to priority in foreclosure sale proceeds based on New Jersey’s UCC fixture-priority statute.

## Issues

1. Whether a fixture financier with a perfected purchase-money security interest in fixtures under N.J.S.A. 12A:9-313 has priority in the proceeds of a judicial foreclosure sale conducted by a first purchase-money mortgagee.
2. Whether Article 9 fixture priority extends beyond rights in the fixtures themselves to create a right to share in or take priority over real estate foreclosure sale proceeds.

## Decision

- The Appellate Division affirmed dismissal of Sears’s counterclaim, holding that a first mortgagee has priority in the funds realized from a foreclosure sale over a fixture financier.
- The court held that Sears’s perfected fixture PMSI did not extend to the real estate or to the foreclosure proceeds from sale of the real estate.
- The court concluded Sears’s remedies were limited to those provided by Article 9 with respect to the fixtures (including removal), not payment from foreclosure proceeds.
- The New Jersey Supreme Court affirmed per curiam, substantially for the reasons expressed in the Appellate Division opinion.

## Legal Principles

- A real property mortgage grants an interest in the land and improvements; a security interest in fixtures, even if perfected as a PMSI, is an interest in the fixture collateral and does not convert into an interest in the real estate.
- N.J.S.A. 12A:9-313 grants fixture financiers priority rights in relation to competing interests in the fixtures, but does not grant priority in, or a claim to, proceeds of a mortgage foreclosure sale of the underlying real property.
- Absent express statutory authorization, courts will not create a remedy that reallocates foreclosure sale proceeds from a senior mortgagee to a fixture financier; the fixture financier’s remedy lies in Article 9 enforcement against the fixtures.

## Conclusion

The courts held that a perfected purchase-money security interest in fixtures does not entitle the fixture financier to priority in, or payment from, proceeds of a first mortgagee’s foreclosure sale; the senior mortgagee takes the foreclosure proceeds, and the fixture financier is limited to Article 9 remedies against the fixtures.


Maplewood Bank & Tr. v. Sears, Roebuck & Co., 265 N.J. Super. 25, 625 A.2d 537 (App. Div. 1993), aff'd, 139 N.J. 126 (1994)