7.2 SECURED TRANSACTIONS Flashcards
WHAT IS ARTICLE 9 OF THE UCC CODE?
THE UNIFORM LAW THAT GOVERNS THE RIGHTS OF CREDITORS AND DEBTORS FOR SECURITY INTEREST IN PERSONAL PROPERTY AND FIXTURES
HOW IS A SECURITY INTEREST CREATED?
PIG
WHAT IS THE MEANING OF HAVING A SECURITY INTEREST?
SEE SCREENSHOT
WHAT DOES IT MEAN TO PERFECT A SECURITY INTEREST?
PERFECTION IS A MEANS FOR THE CREDITOR TO OBTAIN PRIORITY OVER OTHER SECURITY INTERESTS. THERE ARE FOUR METHODS OF PERFECTION UNDER UCC ARTICLE 9.
1) FILING
2) POSESSION,
3) AUTOMATIC
4) TEMPORARY
IN ORDER TO HAVE THE RIGHT OF AN ENFORCEABLE SECURITY INTEREST THE CREDITOR MUST PROPERLY ATTACH AND PERFECT THE SECURITY INTEREST.
PROPER ATTACHMENT AND PERFECTION GIVE A CREDITOR THE RIGHT TO PEACEFULLY REPOSSESS THE COLLATERAL WITHOUT JUDICIAL PROCESS IF THE DEBTOR DEFAULTS.
WHAT IS THE METHOD OF FILLING WHEN PERFECTING A SECURITY INTEREST?
FINANCING STATEMENTS ARE FILLED IN TWO GENERIC PLACES,
1) LOCAL - FIXTURES AND EXTRACTION
2) CENTRAL - ANYTHING ELSE (E.G., CONSUMER GOODS, EQUIPMENT, INVENTIRY) CENTRAL FILING IS TO FILE IN THE STATE WHERE THE COLLATERAL IS LOCATED.
ONCE THE DEBTOR HAS AUTHENTICATED THE FINANCING STATEMENT (SEE SCREENSHOT) IT CAN BE FILED AT ANY TIME. HOWEVER, PERFECTION CANNOT OCCUR UNTIL THE SECURITY INTEREST HAS ATTACHED. THE FINANCING STATEMENT IS EFFECTIVE FOR FIVE YEARS AND CAN BE EXTENDED IF A CONTINUATION STATEMENT IS FILLED 6 MONTHS PRIOR TO EXPIRATION.
WHAT IS THE METHOD OF POSSESSION WHEN PERFECTING A SECURITY INTEREST?
CREDITORS HAVE 20 DAYS FROM THE TIME THEIR SECURITY INTEREST ATTACHES TO COLLATERAL TO EITHER TAKE PHYSICAL POSSESSION OF THE COLLATERAL OR FILE A FINANCING STATEMENT.
IF PERFECTiON FOR PMSI IN CONSUMER GOODS OCCUR WITHIN 20 DAYS, A PMSI IS RETORSPECTIVE TO THE DATE OF ATTACHMENT.
WHAT IS THE METHOD OF AUTOMATIC PERFECTION WHEN PERFECTING A SECURITY INTEREST?
A PMSI (PURCHASE MONEY SECURITY INTEREST) IS A SECURITY INTEREST IN WHICH THE CREDITOR IS PROVIDING THE FUNDS FOR THE PURCHASE OF THE COLLATERAL. PMSI’S IN CONUMER GOODS QUALIFY FOR AUTOMATIC PERFECTION.
CONSUMER GOODS ARE GOODS USED OR BOUGHT PRIMARILY FOR PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES.
PMSI’S ALSO APPLIES IN THE BUSINESS TO BUSINESS CONTEXT FOR THE SALE OF GOODS, HOWEVER THE PMSI IN THIS SCNEARIO IS NOT AUTOMATIC. THE SELLER MUST FILE THE FINANCING STATEMENT TO PERFECT TH PMSI.
WHAT IS THE METHOD OF TEMPORARY PERFECTION WHEN PERFECTING A SECURITY INTEREST?
CREDITORS HAVE 20 DAYS OF TEMPORARY PROTECTION ON NEGOTIABLE INSTRUMENTS BEFORE THEY WOULD BE REQUIRED TO FILE A FINANCING STATEMENT.
WHEN DEBTORS MOVE TO A DIFFERENT STATE A SECURED CREDITOR HAS 4 MONTHS TO RE-FILE.
WHOM TAKES PRIORITY IN SECURITY INTEREST UNDER GENERAL RULES?
SEE SCREENSHOT
WHOM TAKES PRIORITIES IN SECURITY INTEREST UNDER LIENS?
SEE SCREENSHOT
WHAT ARE THE EXCEPTIONS TO GENERAL PRIORITY RULES OF SECURED CREDITORS UNDER ARTICLE 9.
A PMSI IN CONSUMER GOODS PERFECTED AUTOMATICALLY GIVES PERFECTED SECURED STATUS TO THE CREDITORS AGAINST ALL OTHER SUBSEQUENT PARTIES EXCEPT BUYERS OF CONSUMER GOODS NOT IN THE ORDINARY COURSE OF BUSINESS.
TO REPOSSES THE GOOD THE PERFECTED AUTOMATIC PMSI MUST ADDITIONALLY BE FILLED TO PROTECT AGAINST A BUYER NOT IN THE ORDINARY COURSE OF BUSINESS.
NOT IN THE ORDINARY COURSE OF BUSINESS EXAMPLE, “A NEXT DOOR NEIGHBOR”
IF PERFECTiON FOR PMSI IN CONSUMER GOODS OCCUR WITHIN 20 DAYS, A PMSI IS RETORSPECTIVE TO THE DATE OF ATTACHMENT.
WHAT ARE THE RIGHTS OF SECURED CREDITORS WHEN DEBTORS DEFAULT?
THE SECURED PARTY CAN USE JUDICIAL PROCESSES TO COLLECT. ALSO SECURED CREDITORS CAN TAKE PEACEFUL POSSESSION.
AFTER THE GOODS ARE REPOSSESSED, THE SECURED CREDITOR HAS THE OPTION TO SELL OR KEEP THE COLLATERAL.
1) KEEP - THE SECURED PARTY MUST SEND NOTICE OF THE INTENT TO KEEP THE COLLATERAL.
2) SELL - IF THE COLLATERAL IS CONSUMER GOODS AND 60% OR MORE OF THE PURCHASE PRICE HAS BEEN PAID, THE CREDITOR MUST SELL IT AFTER GIVING NOTICE TO DEBTOR, OTHER SECURED PARTIES DO NOT NEED TO BE NOTIFIED.
ONCE THE SALE IS COMPLETED, THE PROCEEDS ARE DISTRIBUTED IN THE FOLLOWING ORDER - SEE SCREENSHOT
WHEN A COLLATERAL IS SOLD WHAT IS THE ORDER OF THE PROCEEDS (I.E. WHO OR WHAT GETS PAID FIRST?)
SEE SCREENSHOT
WHAT IS A MORTGAGE?
MORTGAGES ARE SECURITY INTEREST IN REAL PROPERTY,
MORTGAGE LENDERS ARE REGULATED BY THE REAL ESTATE SETTLEMENT PROCEDURES ACTE RESPA
RESPA PROTECTS HOME BUYERS FROM QUESTIONABLE REAL ESTATE PRACTICES THAT CAUSE BUYERS TO PAY INFLATED LOAN CLOSING COSTS. IT ALSO PROHIBTS LOAN SERVICE PROVIDERS FROM REQUIRING EXCESSIVELY LARGE ESCROW ACCOUNTS.
WHAT ARE A SECURED CREDITOR RESPONSIBILITIES TO A DEBTOR?
1) USE REASONABLE CARE TO PRESERVE THE COLLATERAL
2) CONFIRM UNPAID DEBT AMOUNT UPON REQUEST
3) FILE OR SEND TERMINATION STATEMENT (COLLATERAL RELEASE) TO DEBTOR WHEN DEBT IS PAID
