Perfecting a Security Interest

Question 1

What is perfection?

What purpose does it serve?

Answer 1

It is something that the secured party does to put the world on record/constructive notice of the secured party’s existence (essentially, a publicity device).

Protecting the secured party from competing creditors.

Question 2

How is perfection attained?

Which is the most common method?

Answer 2

A)
1) The secured party takes possession of the collateral;

2) Automatically for purchase money security interests (PMSIs) in consumer goods
3) The secured party properly files notice of the security interest in the public records, putting the world on record/constructive notice of its claims

B) Filing notice.

Question 3

What is a PMSI?

Why do PMSIs in consumer goods get special treatment?

Answer 3

A security interest that enabled the debtor to purchase goods

To encourage lending to consumers - it fuels the economy

Question 4

What must be filed to put the world on notice of a security interest?

Answer 4

Either the security agreement (rare) or, usually, a financing statement providing interested parties only with sufficient information to make follow-up inquiries.

Question 5

What must a financing statement contain?

Answer 5

The debtor’s name and address

The creditor’s name and address

A description of the collateral (can be very generic)

NOTE: this is a very simple/sparse document

Question 6

Where is the financing statement filed?

What is the exception?

Answer 6

With state Secretary of State (VA: State Corp. Commission), in the state where the debtor is located (individuals - primary state of residence; entity’s - state of organization/incorporation).

If the collateral is timber, minerals, or fixtures, file locally, in the county where the property is located.