BMW Financial Services, N.A., LLC v. Felice

Appellate Court of Illinois
2017 IL App (2d) 160397 (2017)

ELI5:

Rule of Law:

A security interest properly perfected on an original certificate of title remains valid and superior to the claims of a subsequent purchaser, even if the debtor fraudulently obtains a duplicate title that omits the lien. The statutory warning on the duplicate title that it 'may be subject to the rights of a person under the original certificate' puts the subsequent purchaser on notice of potential superior claims.

Facts:

On March 13, 2012, Bruce Grant purchased a Porsche and executed a retail installment contract, granting a security interest in the vehicle to BMW Financial Services, N.A., LLC (BMW Financial).
On April 4, 2012, the Illinois Secretary of State issued an original certificate of title for the Porsche which named BMW Financial as the first lienholder.
Grant later submitted a fraudulent 'lien release letter,' which was not executed or authorized by BMW Financial, to the Secretary of State.
On November 16, 2012, the Secretary of State issued a duplicate certificate of title to Grant which did not list BMW Financial as a lienholder but contained the legend, 'This is a duplicate certificate and may be subject to the rights of a person under the original certificate.'
On or about November 20, 2012, Grant sold the Porsche to Auto Showcase, Inc. (Auto Showcase), executing the assignment of title on the duplicate certificate.
Auto Showcase conducted computerized searches of the Secretary of State's records, and these searches did not reveal the existence of any liens on the Porsche.
On November 29, 2012, Auto Showcase sold the Porsche to Richard D. Felice.

Procedural Posture:

BMW Financial filed a replevin complaint against Richard D. Felice in the circuit court of Du Page County, a trial court.
BMW Financial later filed an amended complaint naming both Felice and Auto Showcase as defendants.
Felice was dismissed from the action after Auto Showcase repurchased the Porsche from him.
BMW Financial and Auto Showcase filed cross-motions for summary judgment in the trial court.
The trial court granted BMW Financial's motion, denied Auto Showcase's motion, and awarded possession of the Porsche to BMW Financial.
Auto Showcase, as the appellant, filed a timely notice of appeal to the Illinois Appellate Court, Second District, with BMW Financial as the appellee.

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Issue:

Does a perfected security interest in a vehicle survive and retain priority when a debtor fraudulently obtains a duplicate certificate of title that omits the lien, and then sells the vehicle to a third-party buyer using that duplicate title?

Opinions:

Majority - Presiding Justice Hudson

Yes, a perfected security interest survives a fraudulent transfer using a duplicate title. The issuance of a duplicate certificate of title does not render the original certificate, or the lien perfected upon it, ineffective. BMW Financial properly perfected its security interest under the Illinois Vehicle Code, and its interest remains superior to that of a subsequent purchaser. The statutory warning legend on the duplicate title explicitly states it may be subject to rights under the original certificate, thereby defeating any claim of clear title by Auto Showcase. Furthermore, Uniform Commercial Code (UCC) Section 9-337 is inapplicable because it applies to security interests perfected in another jurisdiction, not Illinois. The 'buyer in the ordinary course of business' exception also fails because the security interest was not created by Auto Showcase, the seller to the end consumer.

Analysis:

This decision reinforces the primacy of a security interest perfected on an original certificate of title against claims from subsequent purchasers who rely on a fraudulently obtained duplicate. The court places the risk of loss from title fraud on the buyer, even a sophisticated commercial dealer, rather than the lienholder who properly followed statutory perfection procedures. The ruling clarifies that the warning legend on a duplicate title is legally significant and serves as sufficient notice to defeat a claim of being an innocent purchaser. Consequently, buyers cannot solely rely on clean computerized records and must be wary of duplicate titles.

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