Over the course of the last several years, a number of automotive financing companies have asked me an interesting and unique question. These companies have specifically asked me about what rights they have — after repossessing a vehicle — in certain items added to the vehicle by the customer after the customer purchases and takes possession of the vehicle from the dealer. Because these items are added to the vehicle by the customer after the customer acquires the vehicle, these items are commonly referred to as “after-acquired collateral.” Although a list of examples of after-acquired collateral can go on and on, the after-acquired collateral at issue in the questions presented to me included tires and wheels, and headrests containing DVD players.

So, the question goes, does an automotive financing company have a security interest such after-acquired collateral? The answer to this question lies in the Uniform Commercial Code, which has generally been adopted by, and is generally applicable in, most states. Florida, for example, is one of such states. The specific provision of the Uniform Commercial Code (UCC) which addresses the question at hand is Section 9-204 of the UCC. A review of Section 9-204 reveals that as long as the after-acquired collateral is an “accession” given as additional security under the subject security agreement (the retail installment sales contract), then the automotive financing company has a security interest in such items. Specifically, Section 9-204 of the UCC governing “After-acquired property” specifically provides that “a security agreement may create or provide for a security interest in after-acquired collateral” including “ an accession when given as additional security…”1 Section 9-204 further provides for a security interest in after-acquired consumer goods that are not “accessions,” as long as the debtor acquires rights in such consumer goods within 10 days after the secured automotive financing company gives value.

So what is an “accession,” you may ask. An “accession” means goods that are physically united with other goods in such a manner that the identity of the original goods is not lost. This definition is found in Section 9-102 of the UCC. Tires and wheels, and headrests containing DVD players, for example, appear to fall squarely within this definition.2 This is because these items are goods that are physically united with a motor vehicle in such a manner that the identity of the motor vehicle is not lost. In other words, these items do not change the identity of the motor vehicle.

Therefore, in short, an automotive financing company may have a security interest in certain after-acquired collateral, as long as 1) the retail installment contract creates or provides for such security interest and 2) the after-acquired collateral is an “accession” given as additional security.

In order to ensure that you have a security interest in after-acquired collateral, you should ensure that the retail installment contracts assigned to you create or provide for such a security interest in after-acquired collateral and specifically in “accessions” added to the vehicle after the debtor’s purchase of the vehicle. Consult a lawyer if you are unsure what language to utilize.

Matters can become more complicated when the after-acquired collateral/accession(s) are financed and secured by the seller/provider of such collateral/accession(s). The UCC speaks to this issue as well. The UCC gives those who perfect their security interest in a motor vehicle by complying with the requirements of a certificate-of-title statute a superior security interest over those with a security interest in an “accession.” More specifically, Section 9-335 of the Uniform Commercial Code provides that “a security interest in an accession is subordinate to a security interest in the whole which is perfected by compliance with the requirements of a certificate-of-title statute.”3 In short, automotive finance companies that perfect their security interest in a motor vehicle by complying with a state’s applicable certificate-of-title statute will have a superior security interest over those with a security interest in an “accession.”

To give a state-specific example, let’s look at Florida. In Florida, a party perfects its security interest in a motor vehicle by noting its lien on the face of the Florida certificate of title pursuant to Section 319.27, Florida Statutes. Therefore, an automotive financing company which perfects its security interest in a motor vehicle by denoting its lien on the subject certificate of title will have a superior security interest over those with a security interest in an “accession.”

The law here enables a secured party to rely upon a certificate of title without having to determine whether anyone else has a security interest in accessions that have been added to a motor vehicle. Therefore it imposes a risk upon those who finance accessions that become part of a motor vehicle.

Indeed, at least one Florida court (in a case in which the author of this article represented an automotive financing company) has ruled that an automotive financing company that had perfected its security interest in a motor vehicle by noting its lien on the certificate of title had a superior interest in tires and wheels over a company that had rented out the tires and wheels pursuant to a rent-to-own contract.

In summary, those who finance tires and wheels, DVD headrests and the like should be aware of the risks they take by financing such goods. On the other hand, automotive financing companies that perfect their security interest in a motor vehicle by complying with the requirements of a certificate-of-title statute will likely have a superior security interest in any tires and wheels, DVD headrests or other similar “accessions” added to the vehicle. Such an automotive financing company may accordingly be entitled to keep such items and dispose of them as required by law.