Encumbered aircraft; repossession certificates; impact on aircraft registration; legal opinion,

[Federal Register: March 21, 2000 (Volume 65, Number 55)]

[Notices]

[Page 15188-15191]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr21mr00-111]

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

Notice and Opinion; Certificate of Repossession of Encumbered Aircraft (AC Form 8050-4)

AGENCY: Federal Aviation Administration, DOT. SUMMARY: This provides notice of a revised Certificate of Repossession of Encumbered Aircraft (AC Form 8050-4), and a legal opinion concerning certificates of repossession and their impact on aircraft registration.

FOR FURTHER INFORMATION CONTACT: Joseph R. Standell, Aeronautical Center Counsel (AMC-7), Post Office Box 25082, Oklahoma City, OK 73125 or telephone (405) 954-3296.

SUPPLEMENTARY INFORMATION: This is to provide notice of a revised Certificate of Repossession of Encumbered Aircraft (AC Form 8050-4) incorporating various changes and revisions to versions of the form dated 6/99 and earlier. A copy of the new form follows this opinion and is available to the public at http://registry.faa.gov/ or linked through http://www.mmac.jccbi.gov/MMAC/

The revised form dated 02-00, supersedes and replaces all previously dated versions of the form. Prior versions of the form will be accepted through the end of the regular business day on the 90th day after the date of publication of this Notice in the Federal Register.

The superseding form and the opinion cotnained herein are in response to general concerns about specific language contained in Certificate of Repossession of Encumbered Aircraft (AC Form 8050-4, 6/ 99 and earlier) and industry practices involving use of that form.

This opinion addresses the comments expressed by attorney John I. Karesh in a letter dated January 19, 1998, to Aeronautical Center Counsel.

This opinion also provides information concerning certificates of repossession and their impact on aircraft registration.

Although it is recognized that certain rights to repossess on default may exist in leases and other transactions, this opinion is limited to repossessions (whether physical or constructive to the extent permitted by applicable local law) and foreclosures which effect a change in ownership of an aircraft.

Opinion--Change of Ownership: An aircraft is eligible for registration only if, among other things, it is owned by a citizen of the United States (49 U.S.C. 44102(a)(1)(A)). Only the owner of an aircraft is eligible to make application for registration of that aircraft (49 U.S.C. 44103(a)).

Each person who submits an Aircraft Registration Application (AC Form 8050-1) must also submit evidence of ownership as required by Sec. 47.11 of the Federal Aviation Regulations (14 CFR Part 47) (the Regulations). Where the applicant relies upon repossession as evidence of ownership, Sec. 47.11(b) provides:

The repossessor of an aircraft must submit--

(1) A certificate of repossession on FAA Form 8050-4, or its equivalent, signed by the applicant and stating that the aircraft was repossessed or otherwise seized under the security agreement involved and applicable local law:

(2) The security agreement (unless it is already recorded at the FAA Aircraft Registry), or a copy thereof certified as true under Sec. 49.21 of this chapter; and

(3) When repossession was through foreclosure proceedings resulting in sale, a bill of sale signed by the sheriff, auctioneer, or other authorized person who conducted the sale, and stating that the sale was made under applicable local law.

Based on information provided by the office of the National Conference of Commissioners on Uniform State Laws, it appears that all 50 states have adopted Article 9 of the Uniform Commercial Code (U.C.C.), albeit with some variations. Therefore, for purposes of this discussion, U.C.C. Article 9, as adopted, is cited as the applicable local law.

In his letter of January 19, 1998, Mr. Karesh states that ``it is standard practice for the repossessing Lender to file for recordation with the FAA the certificate of repossession at the time of repossession, in order to vest title to the aircraft in the name of the Lender.'' This practice is referred to in the aviation legal practice as a ``protective filing.''

Apparently this protective filing practice stems from reliance upon the following language contained in the earlier versions of the Certificate of Repossession of Encumbered Aircraft (AC Form 8050-4) which is typically submitted by a repossessor to the Civil Aviation Registry:

by virtue of such act of repossession he divested the said debtor, and any and all persons claiming by, through or under him, of any and all claims they hand or may have had, and now holds title to the aforesaid aircraft, free and clear * * *.

This language may be causing some confusion; therefore, FAA has revised the form. The revisions emphasize that it is repossession and foreclosure under the applicable local law not the filing of the Certificate of Repossession of Encumbered Aircraft and the Aircraft

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Registration Application which vests ownership of the aircraft for purposes of registration.

In that regard, U.C.C. 9-503 provides that ``unless otherwise agreed a secured party has on default the right to take possession of the collateral * * *'' This right of repossession refers to the taking back of an item, not displacement of all legal rights in and to the collateral (see Official Comment, U.C.C. 9-503).

Section 47.41(a)(4) of the Regulations provides that ``each Certificate of Aircraft Registration * * * is effective * * * until the date upon which ownership of the aircraft is transferred * * *.''

Repossession alone does not effect a change in or transfer of ownership of the aircraft for purposes of Sec. 47.41(a)(4) of the Regulations. A creditor or secured party who has merely repossessed an aircraft without effecting foreclosure is not the owner and is not eligible to make application for registration of the aircraft (see 49 U.S.C. 44103(a)).

On the other hand, foreclosure for aircraft registration purposes effects a change of ownership.

Foreclosure, the process by which the ownership rights of a debtor in the collateral are terminated, may generally be accomplished in two ways:

The first, sometimes referred to as strict foreclosure, U.C.C. 9- 505(2), after due process as required by the applicable local law, allows retention of the collateral by the creditor as follows:

(i)n any other case involving consumer goods or any other collateral a secured party in possession may, after default, propose to retain the collateral in satisfaction of the obligation.

The second, sometimes referred to as statutory foreclosure, U.C.C. 9-504(1), after due process as required by the applicable local law, allows foreclosure to be accomplished by sale of the collateral as follows:

A secured party after default may sell, lease or otherwise dispose of any or all of the collateral in its then condition or following any commercially reasonable preparation or processing.

Either way, fully divesting the debtor's rights in collateral requires both repossession and foreclosure, either by retention of the collateral or by sale to a third party, thereby resulting in a change of ownership under Sec. 47.41(a)(4) of the Regulations.

In both situations, the repossessor must certify that he or she ``has performed all obligations imposed upon him by the terms of the financing agreement and all local laws * * *.'' (AC Form 8050-4, 6/92)

Evidence of Change in Ownership: When foreclosure has been accomplished by the repossessor's retention of the collateral, submission of a completed certificate of repossession or its equivalent, and an Aircraft Registration Application by the repossessor will support registration in the repossessor. FAA presumes that repossession and retention are in accordance with local law (i.e., foreclosure by retention process described in U.C.C. 9-505(2) et seq.).

When foreclosure has been accomplished by sale of the collateral, submission of a completed certificate of repossession or its equivalent, a bill of sale stating that ``the sale was made under applicable local law'' (14 CFR 47.11(b)(3)), and an Aircraft Registration Application will support registration in the name of the buyer.

Dated: March 7, 2000. Joseph R. Standell, Aeronautical Center Counsel. BILLING CODE 4910-13-M

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[FR Doc. 00-6702Filed3-20-00; 8:45 am]

BILLING CODE 4910-13-C