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MEE Secured Transactions > Perfection > Flashcards

Perfection Flashcards

1
Q

What is perfection?

A

The process that stakes the secured party’s claim, so that the secured party might have priority over a later party

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2
Q

What are the six methods of perfection?

A
  • Filing
  • Possession
  • Control
  • Alternative perfection systems
  • Perfection under a state’s certificate of title law
  • Automatic perfection

Mnemonic: Famous People Can’t Avoid Attention

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3
Q

What is perfection by filing?

A

Filing a financing statement in the central filing office of the appropriate state

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4
Q

What types of collateral can be perfected by filing?

A

All types except deposit accounts, money, letters of credit, and collateral subject to other perfection methods (e.g. state certificate of title laws)

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5
Q

What is the purpose of a financing statement?

A

Puts others on notice that there may be a security interest

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6
Q

Where is a financing statement filed? (general)

A

The central filing office, often the secretary of state’s office in the state where the debtor is located

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7
Q

For determining where to file a financing statement, where is a corporation located?

A

Its state of incorporation

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8
Q

For determining where to file a financing statement, where is a business that’s not a registered organization located?

A

The state in which it operates its business

If multiple states, then the state where the CEO is located

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9
Q

For determining where to file a financing statement, where is an individual located?

A

The state of their principal residence

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10
Q

For collateral related to real property, where is the financing statement filed?

A

The county where the property is located

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11
Q

What information is required in a financing statement for perfection?

A
  • Name of the debtor
  • Name of the secured party
  • Description of the collateral
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12
Q

What information is required in a financing statement but not essential for perfection?

A
  • Address of the debtor
  • Address of the secured party
  • Whether the debtor is an individual or an organization
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13
Q

What happens if a financing statement is missing required but nonessential information?

A

A filing office will refuse to accept the statement

However, if a filing office accepts the statement, it is effective to perfect a security interest

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14
Q

What additional information is required in a financing statement for collateral related to real property?

A
  • That the security agreement covers this type of collateral
  • That it is to be filed in the local real property records
  • Description of the related real property
  • Name of the record owner of the real property, if the debtor does not have an interest in the real property
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15
Q

Does recording the mortgage in local real property records satisfy the financing statement requirements for real-property-related collateral?

A

Yes, if it contains the required information.

Note: It does not need to include that it will be filed in the local real property records

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16
Q

A debtor must _________ a financing statement in an authenticated record.

A

authorize

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17
Q

Does a debtor have to sign a financing statement?

A

No

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18
Q

If a debtor authenticates a security agreement, what does that authorize?

A

The secured party to file a financing statement

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19
Q

What can failure to obtain authorization before filing a financing statement result in?

A

The secured party being liable for actual and statutory damages

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20
Q

A financing statement must contain the debtor’s _____ name.

A

legal

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21
Q

If the debtor is a registered organization, what name must be used on the financing statement?

A

The name on the articles of incorporation or last public organic record filed with the state

Note: No trade names (i.e. no d/b/a)

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22
Q

If a debtor is an individual, what name must be used on the financing statement?

A

Majority rule: The name on their non-expired driver’s license or state ID (or their legal name if no ID)

Minority rule: The name on their driver’s license or state ID is a safe harbor, but other legal names may be sufficient

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23
Q

How does the description of collateral for a financing statement compare to that in a security agreement?

A

The description in a financing statement can be super generic

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24
Q

Does a financing statement need to mention proceeds?

A

No

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25
Q

Does a financing statement need to mention after-acquired property or future advances?

A

No

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26
Q

What must happen first: attachment or perfection?

A

Attachment

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27
Q

If the collateral is described in a security agreement but NOT the financing statement, has the security interest attached? Has it perfected?

A

Attached, but not perfected

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28
Q

If the collateral is NOT described in a security agreement but is described in the financing statement, has the security interest attached? Has it perfected?

A

Not attached or perfected

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29
Q

If the collateral is described in both the security agreement and financing statement, has the security interest attached? Has it perfected?

A

Yes, attached and perfected

30
Q

What is the general rule regarding minor errors in a financing statement?

A

They do not affect perfection unless they make the financing statement seriously misleading

31
Q

For financing statements, are errors in the debtor’s name seriously misleading?

A

Almost always

32
Q

For financing statements, when is an error in a debtor’s name not seriously misleading?

A

If the search for the correct name of the debtor would uncover the financing statement with the error

33
Q

If a financing statement lacks the required information, what should the filing office do?

A

Refuse the statement

34
Q

If a creditor fails to tender the fee or submits a financing statement in an improper manner, what should the filing office do?

A

Refuse the statement

35
Q

If a filing office refuses a financing statement and was not justified in doing so, what happens?

A

The financing statement is treated as having been filed

Exception: If a purchaser or secured party reasonably relied on the absence of the record in the files, then it is ineffective

36
Q

What happens if a filing office indexes the financing statement incorrectly?

A

No effect on perfection

37
Q

How many years after the date of filing do financing statements lapse?

A

5 years, unless continued

38
Q

How do you continue a financing statement?

A

By filing a continuation statement within 6 months before the financing statement lapses

39
Q

What happens to the secured party if a financing statement lapses?

A

The secured party loses perfection

40
Q

What might happen if a secured party files a new financing statement to re-perfect?

A

It might lose its place in a priority contest

41
Q

When an obligation is paid back, what voids the financing statement?

A

A termination statement

42
Q

What kinds of collateral can be perfected by possession?

A
  • Money
  • Goods
  • Instruments
  • Negotiable documents
  • Tangible chattel paper
43
Q

What is the only way to perfect a security interest in money?

A

Possession

44
Q

For perfection by possession, when is the security interest perfected?

A

As soon as the secured party has possession

45
Q

For perfection by possession, how long does the security interest remain perfected?

A

As long as the secured party retains possession

46
Q

For perfection by possession, what happens when the secured party no longer has possession?

A

Gives the collateral back to the debtor

47
Q

What kinds of collateral can by perfected by control?

A
  • Deposit accounts
  • Investment property
  • Electronic documents
  • Electronic chattel paper
  • Letter of credit rights
48
Q

What is the only way to perfect a security interest in deposit accounts and letter of credit rights?

A

Control

49
Q

For perfection, how can control be obtained over a deposit account?

A
  • The secured party is the bank that has the deposit account
  • Deposit account control agreement: the secured party, the bank, and the debtor agree in an authenticated record that the secured party (lender) has control
  • The secured party becomes the bank’s customer for the deposit account
50
Q

When another statute (not Article 9) governs how a security interest is perfected, which one must be followed?

A

The other statute

51
Q

What does a certificate of title statute apply to?

A

Cars, motorcycles, and other vehicles that have title

52
Q

Under a certificate of title statute, how does perfection work?

A

By noting a security interest on the certificate of title

53
Q

Under a certificate of title statute, when can a car be perfected by other means?

A

When the car is inventory

54
Q

What kind of PMSI automatically perfects after attachment?

A

A PMSI in consumer goods

NOT inventory, equipment, or farm products

55
Q

What are some examples of collateral that automatically perfect?

A
  • PMSI in consumer goods
  • Casual or isolated assignments of accounts that don’t transfer a significant part of the outstanding accounts receivable
  • Sales of payment intangibles or promissory notes
56
Q

If a debtor’s name change causes a filed financing statement to become seriously misleading, what does the secured party need to do?

A

Within 4 months, discover the change and file an amendment to the financing statement

57
Q

If a secured party fails to amend a financing statement after a debtor’s name change, what happens to collateral acquired before the name change or before the 4-month window expires?

A

Remains perfected by the original financing statement

58
Q

If a secured party fails to amend a financing statement after a debtor’s name change, what happens to collateral acquired after the 4-month window expires?

A

Not covered by the financing statement

59
Q

If a debtor moves out of the state, what happens to a perfected security interest?

A

Remains perfected for 4 months after the debtor moves, unless the financing statement lapses earlier

60
Q

If a debtor moves out of the state, what does the secured party need to do for continuous perfection?

A

Refile in the new state within 4 months

61
Q

If a debtor moves out of state, what happens to collateral purchased during the 4-month window?

A

Covered by the original financing statement

62
Q

If the collateral is moved out of state, when is refiling necessary?

A

When the collateral is transferred to a new debtor

Note: no refiling is necessary if the debtor still owns the collateral

63
Q

If collateral is moved out of state and transferred to a new debtor who lives out of state, what must the secured party do?

A

File a financing statement listing the new debtor within one year

64
Q

If collateral is moved out of state and transferred to a new debtor, what happens if the secured party fails to file a financing statement within a year?

A
  • The security interest ceases to be perfected in the collateral
  • Perfection is lost prospectively
  • Against another secured party or purchaser for value, the security interest is deemed never to have been perfected
65
Q

If a security interest is perfected by possession, when might temporary automatic perfection apply?

A
  • The collateral is an instrument, negotiable document, certificated security, or goods stored with a bailee
  • The secured party gives the collateral back to the debtor for limited purposes:
    • To sell it
    • To exchange it
    • To enforce the debtor’s rights in the collateral
66
Q

How long does temporary automatic perfection apply?

A

20 days

67
Q

What must a secured party do to remain continuously perfected after temporary automatic perfection?

A

File a financing statement or repossess the collateral within 20 days

68
Q

What is the general rule for perfection of proceeds?

A

Automatically perfected for 20 days, and may be perfected after in some circumstances

69
Q

For a perfected security interest in proceeds to have priority dating from the time of perfection in the original collateral, what must be true of the secured party?

A

Has remained continuously perfected

70
Q

After the initial 20 days of perfection for proceeds, what are the circumstances in which perfection will NOT lapse?

A
  • The original financing statement is broad enough to encompass proceeds
  • The secured party amends the financing statement
  • Cash proceeds rule
  • Same office rule
71
Q

For perfection of proceeds, what is the cash proceeds rule?

A

If collateral is sold, licensed, leased, or otherwise disposed of and generates cash proceeds, perfection continues indefinitely in cash proceeds so long as they are identifiable

72
Q

For perfection of proceeds, what is the same office rule?

A

A security interest in proceeds will be perfected when:

  • The financing statement covers the original collateral;
  • The proceeds are collateral in which the security interest may be perfected by filing in the same office as the original financing statement; and
  • The proceeds are not acquired with cash proceeds

MEE Secured Transactions (5 decks)

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