Attachment of Security Interest

Question 1

What are the three requirements needed for a security interest to attach to the collateral thereby making the interest enforceable?

Answer 1

1. Value given by the secured party
2. Debtor has rights in the collateral; and
3. Debtor has authenticated a security agreement that describes the collateral OR the secured party has possession or control over the collateral pursuant to the security agreement

Question 2

After-acquired collateral

Answer 2

Security agreement may provide for a security interest in collateral that is acquired after the date the security agreement was signed

Question 3

Does a security agreement attach to after-acquired collateral if the collateral is consumer goods?

Answer 3

Yes unless:

1. Debtor acquires rights in the consumer goods within 10 days after the value was given; OR
2. A commercial tort claim

Question 4

Future Advances

Answer 4

May also be secured by collateral and is part of the value given by the secured party

Question 5

Floating lien

Answer 5

Maintaining an enforceable security interest in a changing set of collateral

Question 6

Secured Party’s Rights

Answer 6

A security interest continues in collateral notwithstanding sale unless:

1. The secured party authorized disposition free of the security interest (i.e. lender can take back collateral after it’s sold)
2. Goods are sold to the buyer in the ordinary course of business before the financing statement filed
3. Garage sale (sale to a consumer buyer) of consumer goods that aren’t covered by a filing

Question 7

Description of Collateral in the Security Agreement

Answer 7

Needs a sufficient description that reasonably identifies collateral
(Examples: specific listing, category, quantity, equipment & inventory, accounts, etc.)

A super generic description like “all debtor’s assets” is insufficient

Question 8

Comingled Goods

Answer 8

The identity of the goods is lost

Once the goods cannot be separated (like dye and paint) then the security interest is in the resulting product

Question 9

PMSI in goods

Answer 9

Created when:

1. Debtor purchases property from the creditor on credit; or
2. Secured party made a loan (gave value) to the debtor and the debtor incurred an obligation to enable the debtor to acquire rights in or use of the goods and the value given was so used.

Question 10

How long is a security agreement enforceable

Answer 10

5 years and if you want to extend it, you must file within 6 months before the 5 years are up