Mr. Hutton’s vehicles were seized in a levy by the Onslow County Sheriff’s Department in executing on a judgment obtained by Principis. After filing bankruptcy, Mr. Hutton sought turnover of the vehicle and asserted that the possessory lien held by Principii had not been perfected by recordation with the North Carolina DMV.
In narrowly construing and distinguishing several decisions from the North Carolina Supreme Court and Court of Appeals, the bankruptcy court rejected the argument by Principis that recordation is required to perfect a lien under N.C.G.S. § 20-58 only if there is a “security interest” as defined in N.C.G.S. § 20-4.01(41) to have been created by agreement (which a judgment lien is not.) The bankruptcy court relied on the narrow exceptions in N.C.G.S. § 20-58.8, which did not include liens created through judicial proceedings, to find that the failure to record a lien meant that it was unperfected.
As Rule 7001(1) requires turnover be sought by adversary proceeding and Rule 7001(2) requires the same to determine the validity of a lien, it is unclear why Principis even tacitly consented to this matter being heard by motion. The speedier nature of motion practice does make sense when it is just a question of turnover, both as storage costs continued to mount and so too would potential damages from violating the stay by retaining property, but here the secured status was lost without the full due process protections of an adversary proceeding.
That aside, as the possessory lien was a transfer, whether perfected or not, within 90 days of the filing of bankruptcy (actually only 8 days), that lien could have been avoided as an involuntary preference by Mr. Hutton pursuant to 11 U.S.C. § 522(h). This would seem to have been a more modest means to the same end.
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