[WSBARP] How to Perfect a Security Interest in a Cabin Located on US Forest Land

[Eric Lanza]

A topic I find very interesting, but very confusing (or perhaps I am overcomplicating something that is straightforward).

Facts:
Client purchases a loan portfolio from a Lender. One of the loans client purchased  is secured by a Deed of Trust on a "cabin property" in Okanogan county. The parcel number, according to the local assessor, is associated with the cabin only---the debtor on this loan does not own the dirt that the cabin sits on, only the cabin itself. The land is "leased" from the US Forest Service (actually subject to a Special Use Permit, rather than a lease, from what I understand...more on that later).

Client would like to reconvey the other properties in the portfolio, and keep the Cabin as the sole collateral for the outstanding balance on the loan. I requested a Lot Book Guarantee from the title company, to make sure that original loan is still in first position. As expected, the title company won't issue a Lot Book Guarantee for the Cabin. Although it has a parcel number, is "Personal Property" rather than "Real Property" so the title company will not touch it.

An auditor record search for liens associated with the parcel number shows only Client's deed of trust, and nothing else. A UCC search of the owners names does not reveal any financing statements that would cover the cabin.

Question 1: Was a deed of trust the appropriate way to perfect a security interest in the cabin?

Question 2: In an abundance of caution, would it be advisable to file a UCC-1 with the Dept. of Licensing to perfect the security interest Client has in the cabin?

Question 3: If a UCC-1 is advisable, how should the collateral be described? In a UCC-1, I tend to describe collateral using a clearly defined category in UCC 9-102. This cabin doesn't quite fit into a good UCC 9-102 category of collateral because it is presumably not physically movable, so can't be a "good" or "manufactured home" under UCC 9-102. My inclination is to list the physical address where the cabin is located, and the parcel number, along with any accounts receivable associated with the cabin (i.e. rental income), and any household goods now or hereafter located in the cabin (that part, admittedly, is a little tenuous)

Question 4: In typical Ground Leases, there is usually a provision that protects a secured party financing construction of improvements on the land by allowing the Lessee of the ground lease to pledge his/her leasehold interest to their lender as collateral. I fear that an unexpired Special Use Permit from USFS is not able to be pledged as collateral by the permit holder, but I don't know this for sure.  If it is able to be pledged by the permit holder, I want to include debtor's interest under the Special Use Permit as collateral.

One final thought: Maybe this whole exercise is not worth it. Perhaps it is ill advised to use this cabin as collateral for the loan. If the Special Use Permit is revoked, or expires without a renewal, the cabin would presumably revert back to the USFS, and Client would be left fully unsecured.

Thanks in advance for any responses.


Eric J. Lanza, J.D.
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1800 Cooper Point RD SW NO. 8  |  Olympia, WA 98502
Telephone 360.352.1970  |  Fax 360.357.0844 |  www.jaglaw.net<http://www.jaglaw.net/>
eric at jaglaw.net<mailto:eric at jaglaw.net>

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