Chapter 7 Section 2: Secured Transactions Flashcards

1
Q

What is a secured transaction??

A

Debt secured by collateral

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2
Q

What is a security interest?

A

Right of creditor to repossess upon default

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3
Q

When is a security interest effective between parties?

A

Upon attachment

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4
Q

What gives a creditor rights against other third parties who also have interest in the collateral?

A

Perfection

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5
Q

What is the scope of Article 9?

A

Most contractual security interests in personal property or fixtures

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6
Q

What does Article 9 specifically not apply to?

A

Interests in land (mortgages), wage claims, and statutory leins

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7
Q

What is PMSI?

A

Purchase money security interests - has priority over all other types of security interests in the same collateral, if it is property perfected

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8
Q

What makes a PMSI?

A

Creditor sells collateral to debtor on credit, retaining a security interest for purchase price or
Creditor advances funds used by the debtor to purchase collateral

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9
Q

What are the three types of collateral?

A

Consumer goods (personal use)
Inventory (for sale or lease)
Equipment (business use)

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10
Q

What are the three requisites for attachment?

A
  1. Agreement creating interest evidenced by either authenticated record signed by debtor or creditor’s taking possession or control of collateral
  2. Value must be given by the secured party in exchange for the interest
  3. Debtor must have rights in the collateral
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11
Q

What is an authenticated record?

A

Written agreements or computer files authenticated by a signature or electronic mark

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12
Q

Is after-acquired property permissable?

A

Yes

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13
Q

What is after-acquired property most commonly used for?

A

Inventory and equipment

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14
Q

What is perfection?

A

Gives you maximum priority in the collateral over most third parties

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15
Q

What are the five methods of perfection?

A
Filing
Taking possession of the collateral
Control
Automatic perfection
Temporary perfection
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16
Q

Can you perfect before you attach?

A

No

17
Q

What is perfection by filing?

A

Filing a financial statement, authorized by the debtor, with the state, for five years (can be renewed)

18
Q

What is perfection by taking possession?

A

Tangible property, with an oral agreement for attachment is okay - you just take it and then they pay you back and you give it back

19
Q

What is perfection by control?

A

Used for investment property, when the secured party has taken necessary steps to have the property sold without further action from the owner

20
Q

What is automatic perfection?

A

By the attachment of the security interest without any added requirements - used for small scale assignment of accounts or PMSIs in consumer goods

21
Q

What is temporary perfection?

A

Interest in proceeds from original collateral, continuously perfected for 20 days

22
Q

What is the priority ranking for collateral?

A
  1. Buyer in the ordinary course of business of inventory that serves as collateral
  2. Holder of property perfected PMSI
  3. Holder of perfected security interest (non-PMSI)
  4. Holder of unperfected security interest (attached)
  5. Debtor
23
Q

What is the time a PMSI loses?

A

If a buyer of consumer goods resells the goods to another consumer buyer, they take free of an automatically perfected PMSI in consumer goods as long as the secondhand consumer buyer had no notice of the interest (garage sale rule)

24
Q

What is the 20-day rule?

A

A PMSI in equipment has priority over other perfected security interests if filed anytime within 20 days of the debtor getting possession of the collateral. (relates back to date of possession)
There is none for inventory - to have priority it has to be filed before the debtor gets possession

25
Q

Who wins in non-PMSI vs. non-PMSI?

A

First to file

26
Q

What is the most important and most used of the rights on default?

A

The right to take possession of and sell collateral

27
Q

Is self-help repo okay?

A

Yes, as long as you don’t breach the peace

28
Q

Upon sale of collateral, what happens to subordinate claims?

A

They are wiped out and there is no right of redemption by subordinate security interest holders or the debtor

29
Q

What happens to the proceeds from the default sale?

A
  1. Pay expenses of repo and the sale
  2. Pay creditors with a security interest in the collateral in order of priority
  3. Any surplus goes to the debtor
30
Q

Can you retain collateral in satisfaction of debt?

A

Yes, unless it’s consumer goods where the debtor has paid at least 60% of the loan. You have to sell it within 90 days of repo