In re Evans

656 B.R. 848

IN RE: Michael R. EVANS and Kelly N. Evans, Debtors.

No. 23-10622 t13

United States Bankruptcy Court, D. New Mexico

Signed December 12, 2023

Grieta Gilchrist, Gilchrist Law Firm, PC, Albuquerque, NM, for Debtors.

OPINION

David T. Thuma, United States Bankruptcy Judge

Debtors' first amended plan includes a motion to avoid a judgment lien that allegedly impairs the Debtors' homestead exemption.¹ To rule on the motion, the Court must first decide whether Debtors' house is encumbered by a purchase money security interest in a solar panel system installed on the roof of the house. If the solar panels and related equipment are fixtures, the answer likely is yes; otherwise, the answer is no. The issue was submitted to the Court on stipulated facts. The Court finds that the solar panels are not fixtures, so the purchase money security interest does not encumber the house.

A. Facts.²

The Court finds, based on the stipulated facts:³

In 2018, Debtors Michael and Kelly Evans moved to New Mexico from Colorado. In June of that year Michael Evans ("Evans") bought Debtors' current residence at 745 Playful Meadows, Rio Rancho, New Mexico 87144 (the "House"). Debtors have a written agreement that the House is Evans's sole and separate property.

In October 2019, Matthew Rees obtained a Colorado judgment against Debtors, jointly and severally, for $241,070,⁴ plus post-judgment interest at 8%. Rees was also awarded attorney's fees, expenses, and costs of $50,158.

Rees domesticated the Colorado judgment in New Mexico's Thirteenth Judicial District Court. A transcript of judgment was issued by the New Mexico court on September 15, 2020. Rees recorded the transcript of judgment in Sandoval County, New Mexico on October 20, 2020, thereby obtaining a judgment lien on the House.

On or about April 11, 2023, Evans signed a Solar Energy Home Improvement Contract ("Contract") with SunPower Corporation ("SunPower"). The Contract provided for the sale and installation of a solar panel system on the roof of the House. The system includes 14 solar panels, 14 inverters, a monitor, and mounting racks and related hardware (the "System").⁵

The Contract states that Evans is pursuing financing from a lender approved by SunPower for the purchase and installation of the System. Consistent with that pursuit, on April 11, 2023, Evans signed a Solar Energy System Long Term Agreement and Promissory Note (the "Loan Agreement and Note").

Under the Loan Agreement and Note, Evans borrowed $23,758 from Technology Credit Union ("Tech CU") to finance the purchase and installation of the System. To secure repayment of the loan, Evans granted Tech CU a purchase money security interest in the System.

In the Loan Agreement and Note, Evans agreed:

The [System] is not difficult to remove from the Residence and . . . it is not intended to be a fixture or to become a permanent part of the Residence. You agree that you will not make the [System] (or allow any Entity Owner to make the [System]) a permanent part of the [House] unless and until you first pay all amounts outstanding under this Note. Accordingly, you agree that our security interest is a security interest in personal property and not a security interest in real property or in the [House].

The Loan Agreement and Note provides that Tech CU will "make a fixture filing covering the [System]." Tech CU did not do so. However, an entity named SunPower Capital Services LLC ("SunPower Capital"), presumably an affiliate of SunPower, filed UCC financing statements with the New Mexico Secretary of State on July 7, 2023, and with the Sandoval County Clerk's Office on July 11, 2023. The financing statements show SunPower Capital as the secured party and Evans as the debtor.

Permits from the City of Rio Rancho, New Mexico, were required before the System could be installed at the House.

SunPower selected JaGa Networks LLC ("JaGa") to install the System. JaGa applied to Rio Rancho for the permits and submitted shop drawings that detailed the System and its proposed installation.

Rio Rancho issued an "Elec permit PV Solar Only" on July 28, 2023. Debtors filed this case on July 31, 2023. There is nothing in the stipulated facts about whether JaGa installed the System and, if so, when. However, Debtors list Tech CU has having a lien on the House, indicating that, at least in their opinion, the System has been installed.

B. Who Is the Lender?

Neither document Evans signed on April 11, 2023, is a model of clarity. In particular, an Exhibit D to the Contract, titled "(Loan Purchase) Distributed Generation Disclosure Statement," is a remarkable achievement in obfuscation and contradiction. For example, the Contract clearly provides that Evans is buying the System. Exhibit D, on the other hand, states in bold type that "you are entering into an agreement to purchase power, not to purchase the system. You will not own the system affixed to your property." Immediately above that confusing language, however, is the statement that "this is not a PPA or lease." If PPA means power purchase agreement, then the two statements flatly contradict one another. Another example is that in the Contract, SunPower is the "contractor" and Evans is the "Customer," while Exhibit D calls Evans the "buyer or lessee" and JaGa the "Seller or Marketer." JaGa did not sign anything. The only way to make sense of Exhibit D is to find that it was superseded by the Loan Agreement and Note (which it likely was) and ignore it. The Court so finds.

Another difficulty with the transaction documents is the number of parties involved, namely, Evans, SunPower, Tech CU, SunPower Financing, SunPower Capital, LLC, and JaGa.⁶

The Contract refers to a "financing entity approved by Contractor." The Loan Agreement and Note, in turn, states that Tech CU is SunPower's lending partner and will advance the funds, extend Evans credit, and service the loan. Thus, the Contract and Loan Agreement and Note make clear enough, and the Court finds, that Tech CU loaned the money to Evans to purchase and install the System. Tech CU did not file a proof of claim in this bankruptcy case, which is too bad, but Debtors listed Tech CU as a secured creditor, included Tech CU on the mailing matrix, and provided for full payment of Tech CU's loan in their amended chapter 13 plan.

Despite the drafting vagaries, the Court finds that the Contract and Loan Agreement and Note are sufficiently intelligible to be enforced. In general terms, Evans bought the System from SunPower. The purchase price was $23,758. Evans financed 100% of the purchase price with money borrowed from Tech CU. Evans granted Tech CU a purchase money security interest in the System as collateral for repayment of the loan. At SunPower's behest, JaGa was to install the system on the House. It is not known what SunPower paid JaGa for the installation work, or what the status of the installation was on the petition date or is today.

C. Is the System a Fixture?

If the System is permanently affixed to the House, several questions must be answered to rule on Debtor's § 522(f) motion:

• Is Tech CU's security interest a lien on the House?

• If so, is it perfected?

• Does it matter if the lien is unperfected and therefore avoidable?

• What value did the System add to the House?

• When considering a § 522(f) motion, are loans secured by fixture filings taken into account?

On the other hand, if the System is not a fixture, those questions become moot and the resolution of Debtors' § 522(f) motion becomes more straightforward.

Whether the System is a fixture is a question of state law. See In re Flores De New Mexico, Inc., 151 B.R. 571, 581 (Bankr. D.N.M. 1993) (whether an item has become a fixture is governed by state law).

Under New Mexico law, the System was consumer goods when delivered to the House. Id. at 578-79 (goods include all things movable at the time a security interest attaches, while consumer goods are goods "used or bought for use primarily for personal, family or household purposes"). However, if the System was permanently affixed to the House, then for the purposes of the New Mexico Uniform Commercial Code, it would no longer be consumer goods, but instead would have become "fixtures." See NMSA § 55-9-102(41) (fixtures are "goods that have become so related to particular real property that an interest in them arises under real property law"); see also Flores, 151 B.R. at 578-79 (quoting the definition); In re Ryan, 360 B.R. 50, 51 (Bankr. W.D.N.Y. 2007) (once a specialty bathtub, a consumer good, was installed it became a fixture).

To determine whether a particular good becomes a fixture under New Mexico law, three "guidelines" or "tests" are used:

This court has long recognized three guidelines in determining whether an article used in connection with realty is to be considered a fixture. These guidelines are (1) annexation, (2) adaptation and (3) intention. Garrison General Tire Service, Inc. v. Montgomery, 75 N.M. 321, 404 P.2d 143; Patterson v. Chaney, 24 N.M. 156, 173 P. 859, 6 A.L.R. 90 (1918); Post v. Miles, supra.

Boone v. Smith, 79 N.M. 614, 616, 447 P.2d 23 (1968); see also Giant Cab, Inc. v. CT Towing, Inc., 453 P.3d 466, 470 (N.M. App. 2019) (citing Boone); Southwestern Public Serv. Co. v. Chaves County, 85 N.M. 313, 316, 512 P.2d 73 (1973) (citing Post v. Miles, 7 N.M. 317, 34 P. 586 (1893) and the three tests).

1. Annexation. Annexation is the "act of attaching," and "the point at which a fixture becomes a part of the realty to which it is attached." Black's Law Dictionary, (10th Ed.). Easily removed goods generally are not considered annexed. See, e.g., In re Marla Jean, Inc., 25 B.R. 282, 285 (Bankr. W.D. Mo. 1982) (a presumption of lack of intent to affix an article to realty is created when removal can be done without material injury to the freehold); and In re Tri-State Fabricators, Inc., 32 B.R. 260, 262 (Bankr. W.D. Okla. 1983) (citing and following Marla Jean); see generally Mouser v. Caterpillar, Inc.,

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