Perfection

Question 1

What is Perfection?

Answer 1

When a secured party gives notice to the entire world of its security interest (which is key to determining priority).

Question 2

How Perfection is Most Commonly Done

Answer 2

By:

• filing
• possession
• control
• automatic perfection

Question 3

Filing

Answer 3

The process of filing a financing statement in a public office (but it must be the correct office in the correct state).

Question 4

Filing: Choice-of-Law

Answer 4

The law governing perfection of a security interest is the law of the jurisdiction where the debtor is located.

Question 5

Locations of Types of Debtors

Answer 5

• Individual- is located at their principal residence
• Non-registered org.- located at its place of business
• Registered org.- located in its state of organization

Question 6

Things the Financing Statement Must Include

Answer 6

• The name of the debtor
• The name of the secured party or the secured party’s rep.; and
• A description of the collateral covered by the financing statement

Question 7

When a Financing Statement Sufficiently Describes the Collateral

Answer 7

If it provides:

• a description of the collateral that reasonably identifies what is described; or
• an indication that the financing statement covers all assets or all personal property
• overall, a super generic description in a financing statement is sufficient)

Question 8

Filing: Authorization

Answer 8

A financing statement must be authorized by the debtor. A security agreement is authorization for the financing statement.

Question 9

Filing: Special Rules for Fixtures

Answer 9

A fixture filing must:

• indicate that it covers fixtures
• indicate that it is to be filed in the real property records
• provide a description of the RP to which the fixture is related; and
• provide the RP owner’s name, if different than the Article 9, debtor

Question 10

What if the Financing Statement Contains Minor Errors?

Answer 10

The statement will still be effective, unless the errors make the financing statement seriously misleading (failure to provide the name of the debtor)

Question 11

Standard Search Logic Exception

Answer 11

If a search of the records of the financing office under the debtor’s correct name, using the office’s standard search logic, would disclose a financing statement that fails sufficiently to provide the name of the debtor, the financing statement is not misleading.

Question 12

Timing of Filing

Answer 12

A financing statement may be filed before a security agreement is made or a security interest otherwise attaches (important for priority)

Question 13

Perfection of Proceeds

Answer 13

A perfected security interest in proceeds is provided by the Code automatically when the security interest in the original collateral is perfected, unless the security agreement specifically provides that proceeds are not covered.

Question 14

Name Changes After Filing

Answer 14

If a debtor changes its name, resulting in a financing statement that is seriously misleading, the financing statement will only be effective to perfect security interests in collateral acquired within four months of the name change, unless an amendment to the financing statement correcting this is filed within four months of the name change.

Question 15

Debtor’s Relocation After Filing

Answer 15

If the debtor moves to another state, the secured party must file a new financing statement in the new state within four months of the debtor’s move.

Question 16

Expiration of Filing

Answer 16

A filed financing statement is effective for five years after the date of filing. At this point in time a continuation statement must be filed (which will extend it to another 5 years).

Question 17

When Must the Continuation Statement Be Filed?

Answer 17

Within 6 months of the expiration of the 5 year period.

Question 18

Perfection via Possession

Answer 18

A secured party may also perfect a security interest by taking possession of the collateral, if the collateral is:

• tangible negotiable document
• good
• instruments
• money
• tangible chattel paper

Question 19

Can Possession be Accomplished by a Third Party?

Answer 19

The UCC provides for the secured party to have a third-party possess the collateral on its behalf, so long as the third-party authenticates a record acknowledging that is holding the collateral for the secured party’s benefit.

Question 20

Secured Party’s Rights and Obligations While in Possession of Collateral

Answer 20

A secured party who has taken possession of collateral must use reasonable care in its custody and preservation. Reasonable expenses incurred in custody and preservation of collateral may be charged to the debtor.

Question 21

Perfection by Control

Answer 21

A secured party may perfect a security interest by taking control of the collateral if the collateral is a:

• investment security
• letter-of-credit rights
• deposit account
• electronic chattel paper

Question 22

Control for Investment Securities

Answer 22

• A secured party has control of a certificated security in bearer form if he has possession of the security
• A secured party has control of a certificated security in registered form if he has possession of the security, and the certificate is endorsed to the secured party or registered in the name of the secured party
• A secured party has control of an uncertificated security if he has possession of the security or the issuer agrees that it will comply with instructions from a secured party.

Question 23

Control Over a Deposit Account

Answer 23

A security interest in a deposit account (a bank account) is perfected only by control. A secured party has control of a deposit account if:

• the secured party is the bank with which the deposit account is maintained (this is actually a form of automatic perfection), or
• the debtor, secured party, and bank have agreed in an authenticated record that the bank will follow the secured party’s instructions directing the disposition of the funds in the deposit account without further consent by the debtor
• the secured party becomes the bank’s customer with respect to the deposit account

Question 24

Automatic Perfection

Answer 24

There are limited instances in which perfection is automatic. The most common is when the security interest in a PMSI in consumer goods, which perfects upon attachment and remains effective permanently (except for motor vehicles and fixtures)

Question 25

Grace Period

Answer 25

The UCC sometimes provides for grace periods in various instances of 20 days or sometimes 4 months in which a secured party has a grace period in which to take further perfection steps.

Question 26

Can You Continuously Perfect Using Different Methods?

Answer 26

Yes.