Neilson

These two consolidated appeals concern a real estate mortgage investment scheme perpetrated by Debtors, First T.D. & Investment, Inc. (“FTD”) and Joint Develop-. ment, Inc. (“JDI”). 1 The trustee of their consolidated Chapter 7 bankruptcy estates, Appellee R. Todd Neilson (“the Trustee”), filed an adversary action against Defendants, 132 investors in FTD, 2 alleging that collateral notes and trust deeds (“security instruments”) assigned by FTD to Defendants as security for their investments did not perfect their interests because Defendants did not have possession of the security instruments.

Twenty years ago, in a case with facts very similar to those here, we held that such security interests could not be perfected under California law without actual possession of the security instruments. See Greiner v. Wilke (In re Staff Mortgage & Inv. Carp.), 625 F.2d 281, 283 (9th Cir.1980) (“Staff Mortgage ”) (citing Cal. Comm.Code § 9304(1)). More than a decade later, the California Legislature created an exception to this rule by enacting California Business and Professions Code § 10233.2, which, under limited circumstances, permits perfection without possession of the security…