In this action, which originated in the Bankruptcy Court for the Eastern District of ARkansas, appellant, the United States Department of Housing and Urban Development (HUD) claims a right to rental payments collected by the debtor, Landmark Park & Associates (Landmark) during Landmark’s post-petition operation of a mobile home park. In 1973, the parties executed a Regulatory Agreement and Deed of Trust in connection with a $536,000 loan by HUD which Landmark used to purchase the University Hills Mobile Home Park in Starksville, Mississippi. Both loan documents contained a clause assigning all rents, profits and income from the park to HUD as part of the security for the loan.
In early 1983, HUD notified Landmark of its default and moved to foreclose and sell the property. Shortly thereafter, on March 15,1983, Landmark filed a bankruptcy petition seeking reorganization under Chapter 11 of the Bankruptcy Code. During the bankruptcy proceedings, the debtor continued to operate the park and collect rentals. Landmark also paid the ordinary expenses of operation and maintenance of the park but failed to pay taxes or mortgage payments to HUD.
The bankruptcy and district courts denied HUD’s claim to post-petition rentals generated by the park on the ground that HUD had failed to perfect its interest in rents and profits under applicable nonbank-ruptcy law. If unperfected, HUD’s security interest in rents and profits is subordinate to that of the debtor-in-possession on behalf of the unsecured creditors of the estate by virtue of 11 U.S.C. § 544(a), the “strong-arm clause.”
11 U.S.C. § 552(b) indicates that a secured party’s right to rents, profits and other products or proceeds acquired by the estate after the commencement of bankruptcy depends upon the provisions of the security agreement and “applicable non-bankruptcy law” (except the court has discretion to deviate from such provisions based on the equities of the case). The central issue of this appeal is whether state or federal law is the “applicable nonbank-ruptcy law” governing perfection of the security interest in rents and profits created by the Regulatory Agreement and Deed of Trust in favor of HUD, a nationwide federal mortgage lender.
We conclude that federal rather than state law controls the manner in which HUD could perfect its interest in the rental income and that HUD’s interest was perfected as of the date of the debtor’s default, at least no later than March 15,1983. Accordingly, we reverse. 1
Concerning whether state or federal law applies to this controversy, Landmark relies on
Butner v. United States,
On the other hand, neither
Butner
nor
Village Properties
dealt with a federal lender. In
United States v. Kimbell Foods, Inc.,
The presumption expressed in
Kimbell
in favor of federal law when a federal creditor’s rights are at stake is consistent with the views expressed by our circuit and others in related contexts.
See, e.g., United States v. Victory Highway Village, Inc.,
As we have previously recognized, the application of federal law to the rights and remedies of the United States upon default of federally held or insured loans is warranted by the “ ‘overriding federal interest in protecting the funds of the United States and in securing federal investments’ ”.
United States v. Victory Highway Village, Inc., supra,
As for the content of the applicable federal law, we understand
Kimbell
to indicate that “state law [can] be adopted as the federal rule of decision so long as a national rule [is] not needed to protect the federal interests underlying the [federal lending] program.”
United States v. Missouri Farmers Association, Inc.,
We have incorporated state law as the federal rule of decision when the state law is derived from a uniform statute such as the Uniform Commercial Code and to do so would therefore not hinder the “federal interest in uniformity of the law.”
United States v. Kukowski,
Moreover, there exists considerable difference of opinion concerning permissible methods by which an interest in rents may be perfected while the automatic stay of 11 U.S.C. § 362 is in effect.
See, e.g., Consolidated Capital Income Trust v. Colter, Inc.,
In the circumstances of this case, HUD was unable to obtain a hearing in the bankruptcy court for eight months after moving for relief from the automatic stay. In light of the idiosyncrasies of state law and bankruptcy practice, we conclude that a uniform federal rule is necessary to clarify the means by which a federal lender may enforce an assignment of rents.
Two district courts have held that no affirmative acts of any kind are necessary to enforce HUD’s right under its Regulatory Agreement and Deed of Trust to rental income derived from the mortgaged property between the debtor’s default and HUD’s possession or foreclosure of the property.
See United States v. Floral Park Development Co.,
The loan documents dedicate rental income to debt service payments and reasonable operating and maintenance expenses. The documents permit the debtor to collect and retain rents so long as it is not in default. “Upon default, the mortgagor’s entitlement to further rents ceases and the United States’ right to such receipts is perfected.”
American National Bank & Trust Co., supra,
We differ from the reasoning of Floral Park and American National Bank & Trust to the extent that we consider the affirmative act of recording the loan documents essential to perfect the security interest in rents created by the rent assignment provisions. We consider recording necessary in order to meet the concern for the predictability and stability of financial transactions expressed in United States v. Kimbell Foods, Inc., supra.
We consider the stability of commercial transactions sufficiently protected by the requirement that HUD record the documents on which it relies for the creation of its security interest in rents and profits. Our conclusion that HUD, as a federal creditor, could perfect its interest in rents by recording the loan documents containing the assignment of rents results in affording other creditors notice of HUD’s interest while protecting HUD from the vagaries of state law concerning acts necessary to activate a mortgagee’s entitlement to rents. Since HUD did record the documents prior to the debtor’s default and the initiation of bankruptcy proceedings, and since we do not consider the state law requirement of possession of the property or appointment of a receiver applicable to HUD, the result in the circumstances of this case is that HUD’s security interest in the rents and profits was perfected pre-pe-tition.
The issues discussed in this opinion were presented in the context of an appeal from a denial of HUD’s motion for payment of *688 monies based on 11 U.S.C. § 363(e). We reverse and remand this action to the district court with directions to refer the case to the bankruptcy court for proceedings consistent with this opinion. 4
Notes
. During the bankruptcy proceedings, HUD took a number of procedural steps in an effort to assert its right to the rental income. On December 2, 1983, HUD moved for relief from the automatic stay alleging that its interests were not adequately protected and that income from the park was being improperly distributed as no mortgage payments had been made. After a series of continuances and recusals by bankruptcy judges, the motion was heard on July 20, 1984, and denied on September 5, 1984. HUD failed to take a timely appeal of this order to the district court.
In the meantime, HUD also filed a proof of claim attaching the note and loan documents. Moreover, on July 31, 1984, HUD filed a "motion for payment of monies for the use of property” premised on 11 U.S.C. § 363(e), seeking to prohibit the debtor’s use of cash collateral (the rental income) absent adequate protection of HUD’s interest in the realty and rents. HUD’s appeal from the bankruptcy court’s order of September 10, 1984, denying HUD’s motion for payment of monies was timely. Because, as we have determined herein, HUD’s interest in the rental income was perfected, the bankruptcy and district courts erred in authorizing the debt- or’s use of cash collateral without assuring adequate protection of HUD’s interest.
.
Clearfield Trust Co. v. United States,
. At issue in Kimbell were questions of priority as between federal security interests stemming from federal loan programs and private liens arising under local law. In determining that federal law controlled these controversies, the Supreme Court stated:
This Court has consistently held that federal law governs questions involving the rights of the United States arising under nationwide federal programs. As the Court explained in Clearfield Trust Co. v. United States, supra, at 366-367, [63 S.Ct. at 575 ]:
"When the United States disburses its funds or pays its debts, it is exercising a constitutional function or power.... The authority [to do so] had its origin in the Constitution and the statutes of the United States and was in no way dependent on the laws [of any State], The duties imposed upon the United States and the rights acquired by it ... find their roots in the same federal sources. In absence of an applicable Act of Congress it is for the federal courts to fashion the governing rule of law according to their own standards." (Citations and footnote omitted.)
Guided by these principles, we think it clear that the priority of liens stemming from federal lending programs must be determined with reference to federal law. The SBA and FHA unquestionably perform federal functions within the meaning of Clearfield. Since the agencies derive their authority to effectuate loan transactions from specific Acts of Congress passed in the exercise of a "constitutional function or power,” Clearfield Trust Co. v. United States, supra [318 U.S.] at 366 [63 S.Ct. at 575 ], their rights, as well, should derive from a federal source. When Government activities “aris[e] from and bea[r] heavily upon a federal ... program," the Constitution and Acts of Congress “ ‘require’ otherwise than that state law govern of its own force.” United States v. Little Lake Misere Land Co.,412 U.S. 580 , 592, 593 [93 S.Ct. 2389 , 2396, 2397,37 L.Ed.2d 187 ]. In such contexts, federal interests are sufficiently implicated to warrant the protection of federal law.
United States
v.
Kimbell Foods, Inc.,
. By an order of December 18, 1984, the bankruptcy court lifted the automatic stay, 11 U.S.C. § 362, and HUD foreclosed and sold the property. The bankruptcy court should consider whether HUD is entitled to an accounting and turnover of rents collected by the debtor between March 15, 1983, and the foreclosure sale pursuant to 11 U.S.C. § 363(c)(4).