1. What was the timing issue with the lien on the Honda?

2. Why does the court conclude that the lien is not a voidable preference?

On July 3, 2013, Scott and Nicole Conklin (Debtors) entered into a retail installment contract with Hannigan Auto Sales, LLC, in Emmett, Idaho, to purchase a Honda Pilot. CAC agreed to finance Debtors’ purchase in the amount $12,871.20. Debtors took possession of the Honda the same day.

CAC thereafter mailed a “Report of Sale and Application for Certificate of Title” to Gem County. The Application was received by Gem County on August 2, 2013, as is evidenced by a date stamp appearing on the Application. However, while the certificate of title issued for the Honda by the State of Idaho properly listed CAC as the “lienholder,” it indicated that CAC’s lien was “recorded” on August 6, 2013. August 2, 2013, is 30 days after July 3, 2013, the day Debtors purchased and took possession of the Honda.

Debtors filed their Chapter 7 case on September 4, 2013. On October 21, 2013, the Trustee commenced this adversary proceeding against CAC contending that because CAC’s security interest in the Honda was not perfected until August 6, as evidenced by the recording date on the title, that security interest was a voidable preference.

The discrepancy between the date the Application was received by Gem County, and the lien recording date listed in the title record for the Honda occurred when the information was transmitted by Gem County to the Department to create the certificate of title. Legal Counsel for the Conklins made a request to have the date changed and, thereafter, the date in the electronic records for the Honda title certificate was changed to reflect a recording date of August 2, instead of August 6, 2013. A certified copy of a printout of the electronic record of title for the Honda, which shows August 2, 2013, as the “recorded” date for CAC’s lien, was submitted in evidence.

Both parties moved for summary judgment.

JUDICIAL OPINION

PAPPAS, Bankruptcy Judge … Debtors and CAC concur that no genuine issues of material facts remain, but they insist that they are entitled to a summary judgment. One of the preference exceptions protects the transfer of a security interest to a lender to enable the debtor to acquire the property subject to the lien. While Trustee concedes the other requirements for a preference exception are satisfied here, he argues that CAC cannot meet the requirements of § 547(c)(3)(B), which limits the enabling loan exception to “a security interest in property acquired by the debtor … that is perfected on or before 30 days after the debtor receives possession of such property.”

To determine when CAC’s lien on the Honda was “perfected” for preference purposes, the Court applies Idaho law:

Currently under Idaho Code, there is a twenty (20) day time[ ]frame from the date of sale in which a lender can perfect a security interest. Federal bankruptcy code was amended to allow a thirty (30) day time frame to perfect a lien. The amendments eliminate redundant lien creation date language and simplify processes, thereby clarifying that the filing time frame for perfection of a lien is the filing date of a properly completed title application with the department. They further change the transitional ownership document filing requirement to 30 days. ………………………….