20 Competitions for Collateral - Lien Creditors Against Secured Creditors Flashcards
COMPETITIONS FOR COLLATERAL - Lien Creditors Against Secured Creditors
BL-1
What is a lien creditor per UCC §9-102(a)(52)(A)?
A creditor that has acquired a lien on the property involved by attachment, levy, or the like.
Tip: think judicial lien creditor.
BL-2
Generally, what are the four ways one becomes a “lien creditor” under Art. 9?
i. Win judgement against debtor, obtain writ of execution [attatchment], then obtain lien by levying on specific property of the debtor;
ii. Writ of garnishment served on 3P;
iii. Record a money judgment in the real property recording system; or
iv. Become a Trustee in Bankruptcy ( the ideal lien creditor).
BL-3
What are the various rules governing priority among “lien creditors”?
i. Date of Levy - when sheriff or officer took possession
ii. Date of delivery of the writ – when creditor delivers writ to sheriff
iii. Date of service of a writ of garnishment – is the delivery of the writ by the sheriff to the garnishee (bank/ER)
iv. Date of recordation of judgement – date the judgement is delivered to the filing or recording officer.
BL-4
When is priority determined between a lien creditor and a non-PMSI Art. 9 secured creditor?
How is priority determined?
WHEN: priority depends on whether the non-purchase money Art.9 creditor perfects its security interest or files a financing statement and complies with UCC §9-203(b)(3) before the judicial lien-holder becomes a “lien creditor” under state law.
HOW:
The Art. 9 creditor gets inchoate priority IF:
- (1) files a financing statement and complies with UCC §9-203(b)(3) first; AND
- (2) EITHER:
(a) signed a security agreement; OR
(b) secured creditor has possession of the collateral. - For inchoate priority to become ACTUAL priority, Creditor must perfect the security interest by giving value—perfection relates back to the time when the inchoate priority was created
BL-5
When does the possibility to perfect on inchoate priority end?
The possibility to perfect on an inchoate priority ends when either:
- there is a foreclosure sale; OR
- Bankruptcy filing.
BL-6
When does a judicial creditor actually become a “lien creditor.” (Majority and Minority jurisdiction rules)
• Majority: JC when the sheriff levies on the property and takes possession from the debtor.
• Minority 1: JC when the writ is delivered to the sheriff
• Minority 2: JC gets inchoate priority when writ is delivered, become choate upon levy
o Allows delivery to determine priority between JCs, but allows ending of priority upon bankruptcy if no levy yet
BL-7
How is priority between lien creditors and mortgage creditors:
(a) governed; and
(b) generally determined?
(a) under state real estate law applies.
(b) generally, the rule is first priority to the first lien created; reversed if failure to perfect offend’s state’s recording statute.
BL-8
What is the majority rule for a judgement lien creditor against real property?
Judgement lien creditor is not entitled to the benefit of the recording statute. The result is that a mortgage granted before the judgement creditor became a “lien creditor” (by recording its judgement) has priority over the judgement lien even though the judgement lien was perfected first.
BL-9
What is priming?
Priming is a term for when a second-in-time interest takes precedence over an earlier interest.
BL-9
(a) What is a purchase money security interest (PMSI)? [green]
(b) What are the two ways the security interest is created? [blue]
A security interest that is created when a buyer uses the lender’s money to make the purchase AND immediately gives the lender security by using the purchased property as collateral (UCC §9-103).
A security interest that is either
(1) taken or retained by the seller of the collateral to secure all or part of its price; OR
(2) taken by a person who by making advances or incurring an obligation gives value to enable the debtor to acquire rights in or the use of collateral if that value is in fact so used.
APP
In what scenario does the “lien creditor” prevail against the secured creditor with a PMSI?
When the PMSI is not in consumer goods (b/c automatic perfection) if the secured creditor fails to perfect its interest within the 20-days of the time the debtor received the property by filing the financing statement.
