Perfection Flashcards
What are the four methods of perfecting a security interest?
(1) Filing
(2) Possession
(3) Control
(4) Automatic Perfection
*Faith Calls All Patrons.
What is the purpose of perfection of a security interest?
A perfect and security interest provides protection to the secured party against claims by third parties.
How can a third-party perfect by filing?
A financing statement must be filed with the Secretary of State where the debtor or real property is located. The filing must include the debtor’s name, secured party’s name, and the type of collateral.
What is the consequence of a mistake in the debtors name on a financing statement?
A mistake in the debtor’s name that is seriously misleading will make the perfection ineffective unless a standard index search would nonetheless disclose the financing statement. A mistake in the secured party’s name will not affect perfection.
What does a filing expire?
A security interest perfected by filing will expire after five years, unless extended by continuation statement that is filed within six months of the expiration date. An expired filing renders a security interest unperfected.
What must a secured party do if the debtor relocates to another state?
Secured party must file in the new state within four months or the interest will become unperfected after four months.
What must a secured party do when a debtor changes its name?
The secured party must file an amendment within four months after a name changed by the debtor, otherwise any collateral required after four months will not be covered by the financing statement and thus unperfected.
What types of collateral can be perfected by possession?
Perfection by possession is allowed for a good, document, negotiable instrument, money, or tangible chattel paper.
What types of collateral can be perfected by control?
Perfection by control is allowed for an account, deposit account, or letter credit. Control cannot require the debtor’s cooperation for access. If the secured party holding the account is a bank, control is automatic.
What is automatic perfection?
Automatic perfection occurs upon attachment and does not require any additional steps of the secured party to create a perfect interest.
What types of collateral can be perfected by automatic perfection?
A PMSI in consumer goods, the sale of a payment intangible or promissory note and casual, small assignments of accounts or payment intangibles, proceeds, and new value
What are the two ways to create a purchase money security interest?
(1): when a creditor sells goods to the debtor on credit and reserve to security interest; or (2) advancement of funds used to purchase the goods and reserve a security interest.
