Mason v. Szerwinski (In re Szerwinski)

2012 FED App.0002p (6th Cir.); File name 12b0002p.06; Docket No. 11-8050
The Bankruptcy Appellate Panel affirmed the ruling of the Bankruptcy Court for the Northern District of Ohio, which dismissed a Chapter 7 Trustee's complaint seeking to avoid a mortgage against the Szerwinski's leasehold interest in real property and ownership interest in the cottage located on the property. The BAP determined that Ohio law controlled the issue of whether the cottage was a chattel or a fixture and relied on Teaf v. Hewitt, 1 Ohio St. 511, 527 (1853) which sets forth a three part test for determining if property was a fixture: 1) actual annexation to the realty, or something appurtenant thereto; 2) appropriation to the use or purpose of the part of the realty with which it is connected; and 3) the intention of the party making the annexation to make the article a permanent accession to the freehold - this intention being inferred from the nature of the article affixed, the relation and situation of the party making the annexation, the structure and mode of annexation, and the purpose or use for which the annexation has been made. The Bankruptcy Court found all three elements had been met and that the Bank's mortgage was valid against both the cottage and the Debtor's leasehold interest. On appeal, the Trustee focused on evidence of the third factor - the parties' intent. The BAP found the language of the lease contradictory as it treated the cottage as a fixture in the event of default, but a chattel if the lease was fully performed. The BAP held that the testimony did not establish an intent to move the cottage, and that such a specific intent was relevant under Ohio law. Finally, the BAP held that the fact the cottage was transferred via a bill of sale was immaterial and that the cottage was a fixture. To conclude its opinion affirming the Bankruptcy Court, the BAP determined that the Bank's mortgage was valid as a fixture filing and a leasehold mortgage under Ohio law.
Procedural context:
The Bankruptcy Court granted a partial summary judgment against the Trustee finding that the bank's mortgage was valid and subsequently held a trial on the issue of whether the cottage was a chattel or a fixture. The Bankruptcy Court found the cottage was a fixture and dismissed the Trustee's complaint. The Trustee timely appealed.
In late September, 2006 the debtors entered into a 30-year lease of a lot in the Muskingum Watershed Conservancy District, a bill of sale for the cottage on the lot and a mortgage with PNC Bank against the leasehold interest and the cottage. The Debtors filed for chapter 7 on October 15, 2009 and their Trustee filed an adversary "to determine liens" in February, 2010. The evidence established that the cottage was constructed on the lot and never had an independent identity; that it was unlikely the cottage would be moved as it was integral to the property; and, that neither the documents nor testimony established that the cottage was a chattel.
Emerson, Fulton and McIvor; authored by McIvor

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