FL secured transactions

Question 1

how is it tested

Answer 1

MPC

Question 2

secured transaction: overview

Answer 2

• creating liens on personal property
• Someone called the “debtor” purchases someone on credit from “creditor/secured party” to ensure payment received for item debtor purchased, secured party takes security interest= collateral.
• If the borrower “Debtor” doesn’t pay, take collateral and sell it to pay what they owe you.
• When you take the lien, you attach the collateral.
• Attach security interest to collateral.
• Multiple parties can attach the same collateral.
• The order in which you file the liens, “attach” is important.
• To make sure lien has priority in foreclosing against multiple creditors, must “perfect” the security interest.

Question 3

Purchase Money Security Interest (PMSI): What Is It?

Answer 3

• Special type of security interest lien in consumer goods.
• Creditor that holds PMSI has priority in default over other security interests.
• Super lien.
• Automatically perfected.

Question 4

Purchase Money Security Interest (PMSI): First Method of Obtaining a PMSI - Selling of Goods on Credit

Answer 4

• Retailer lend you money to buy
• Buy tv from best buy on best buy credit
• Automatically have PMSI

Question 5

Purchase Money Security Interest (PMSI): second Method of Obtaining a PMSI – Lending the Money to Purchase a Consumer Good

Answer 5

• Someone other than retailer lends you money to buy
• Buy tv from best buy through chase

Question 6

Purchase Money Security Interest (PMSI): why is it important?

Answer 6

• PMSI status gives creditors rights in collateral, attachment of security interest occurs at the moment of signing
• They have automatic lien on security
• Has an automatic perfection, too
• Essentially, creditor is first in line if buyer defaults

Question 7

what can be collateral?: Tangible Collateral or Goods

Answer 7

• Consumer goods, things you buy for the buy
• Inventory- goods held for business for sale/lease
• Farm products, like crops and animals
• Business equipment, not for sale but used to run business

Question 8

what can be collateral?: Intangible or Semi-Tangible Collateral

Answer 8

• Negotiable instruments (lien on note/draft)
• Warehouse receipts (Article 4)
• Accounts receivable

Question 9

What Can Be Collateral?: proceeds

Answer 9

• Can lien a proceed, take a form of collateral (reselling consumer goods, give you a lien which attaches to it, but before this happens I sell it and convert it to cash, it becomes a proceed; we transfer lien from original collateral to the proceed)
• Proceed- whatever you get from exchanging, selling, disposing collateral

Question 10

Attachment – Creating the Security Interest: introduction

Answer 10

• In order to have any rights in collateral, creditor must create a security interest that attaches to it
• no security interest, no attachment, no lien
• attachment gives creditor the right to take the collateral, debtor does not pay

Question 11

attachment- creating the security interest : three requirements

Answer 11

• Must co-exist at the same time
• 1. Debtor has rights in collateral
• Debtor has a right to do something with the collateral
  o Does not mean they own the collateral
• 2. The value must be given by the secured party
• Given something in exchange
• 3. Agreement to create security interest
• Show the creditor has possession of collateral, shows there is agreement to use collateral as security
• Debtor can authenticate a security agreement, like a written doc
• Control of collateral, creditor has some control (like they are joint account holder on bank account) shows security interest agreed to

Question 12

attachment- creating the security interest : Requirement 1 - Agreement to Create a Security Interest

Answer 12

• Taking possession
• having control
• Written security agreement
• Has to describe collateral by category/type(Equipment, inventory, consumer goods), or other specificity (like serial number)
• Super generic descriptions do not attach (“all of the debtors assets”)

Question 13

attachment- creating the security interest : Requirement 2 – Value Given by the Secured Party

Answer 13

• Secured party (creditor) has to give something of value
• Typically financing transaction itselF
• No free liens

Question 14

attachment- creating the security interest : Requirement 3 – Debtor has Rights in the Collateral

Answer 14

• Usually debtor has right to title, they own it

Question 15

attachment- creating the security interest : Can After-Acquired Property Be Collateral?

Answer 15

• I have security interest which says chase has security interest on all of debtors equipment, tomorrow I buy a new cash register, does security interest also attach new piece of equipment bought after I signed security agreement? Yes
• So long as agreement states something like “We hereby attach all of debtors equipment now owned or in the future acquired.”

Question 16

Perfection of Security Interest: Intro

Answer 16

• Attachment gives creditor right to collateral if debtor does not pay
• Use profit to pay what was owed and give back any surplus
• We have right to have Multiple creditors can attach
• If debtor does not pay multiple creditors, order in which we pay when there is foreclosure is important
• Highest level of protection (1st to be paid in foreclosure on asset), we want to perfect their security interest

Question 17

Perfection of Security Interest: Can You Perfect Before Attachment?

Answer 17

• No, you need to have a security interest existing before it can be perfected
• If someone takes steps to perfect the security interest and then they attach, the security interest is perfected the moment it is attached
• No attachment until perfection in that circumstance
• You could have perfected before attached, nothing valid, and another creditor attaches and perfects first

Question 18

Perfection of Security Interest: The Five Ways to Perfect an Attached Security Interest

Answer 18

1. filing
2. perfection by possession
3. perfection by control
4. PMSI automatic perfection
5. temporary perfection

Question 19

Perfection of Security Interest: : The Five Ways to Perfect an Attached Security Interest: Method 1 – Filing

Answer 19

• Financing statement needs:
• Has to have debtors name and mailing address
• Secured party name and mailing address
• Collateral covered by the financing statement
• This is how you perfect it

Question 20

Perfection of Security Interest: : The Five Ways to Perfect an Attached Security Interest: Method 2 – Perfection by Possession

Answer 20

• If creditor takes possession, it is perfected moment they take possession

Question 21

Perfection of Security Interest: : The Five Ways to Perfect an Attached Security Interest: Method 3 - Perfection by Control

Answer 21

• security interest creditor perfected moment creditor takes control of collateral

Question 22

Perfection of Security Interest: : The Five Ways to Perfect an Attached Security Interest: Method 4 - PMSI Automatic Perfection

Answer 22

• Automatically perfected the moment it attaches

Question 22

Perfection of Security Interest: : The Five Ways to Perfect an Attached Security Interest: Method 4 - PMSI Automatic Perfection

Answer 22

• Automatically perfected the moment it attaches

Question 23

Perfection of Security Interest: : The Five Ways to Perfect an Attached Security Interest: Method 5 – Temporary Perfection

Answer 23

• When it happens to proceeds= what you get from sale of attached collateral
• Automatically, but only temporarily perfected for 20 days

Question 24

Priority: Introduction

Answer 24

• Allocation of interest among competing claims to the same collateral
• Once debtor defaults, and they start foreclosure process to gather asset sell and get proceeds, who gets money first? Look to priority

Question 25

Priority Rules: Unperfected Secured Party vs. Unperfected Secured Party

Answer 25

• The first to attach gets priority

Question 26

Priority Rules: Perfected Secured Party vs. Unperfected Secured Party

Answer 26

• A perfected secured party always has priority over unperfected secured party
• Doesn’t matter who got lien first

Question 27

Priority Rules: Perfected Secured Party vs. Perfected Secured Party

Answer 27

• First party to perfect

Question 28

Priority Rules: The Mighty PMSI

Answer 28

• Generally, PMSI has super priority over all other creditors
• PMSI on consumer good and someone else comes and attaches and perfects, PMSI wins
• If there are 2 PMSIs, for example if there is lender and seller as PMSI, seller has priority

Question 29

Priority Rules: Purchasers in Ordinary Course of Business and Holders in Due Course

Answer 29

• Super priority: A buyer of collateral, in ordinary course of business, that does not know they are violating security interest, takes priority over everything
• Extra priority: Holder in due course of negotiable instrument takes priority in getting paid for instrument over everyone except the person stated above (person who buys collateral in ordinary course of business, including PMSIs)

Question 30

Priority Rules: Purchasers in Ordinary Course of Business and Holders in Due Course

Answer 30

• Super priority: A buyer of collateral, in ordinary course of business, that does not know they are violating security interest, takes priority over everything
• Extra priority: Holder in due course of negotiable instrument takes priority in getting paid for instrument over everyone except the person stated above (person who buys collateral in ordinary course of business, including PMSIs)

Question 31

Rights of Creditor Upon Default of Payment Obligations: Take Possession and Sale of Collateral

Answer 31

• Creditor doesn’t pay, foreclosure
  Creditor can (this is usually tested)
  1. Take possession of collateral
• Creditor can do it without or with judicial intervention, if they can do it without breaching peace (if you do not need to use force to obtain collateral)
• If cannot be done without breach of peace, need to get court involved (order of replevin, allows you to use force to get goods)
  2. Sell it
• Sell it at public or private sale that is “commercially reasonable
• Have to give 10 days notice to sale to debtor and other secured parties
• Once sale occurs, it discharges all inferior security creditors
• If collateral sells for less than money owed creditor can sue for deficiency judgment (many states allow this)

Technically, creditor can also choose to sue (not usually tested)