Perfection Flashcards
What is the definition of perfection in a secured transaction?
Perfection establishes a secured party’s rights in the collateral against third parties.
What is the key purpose of perfection?
To give notice to the entire world of its security interest, which is key to determining priority.
Under what conditions is a security interest considered perfected?
If it has attached, and if all of the requirements for perfection have been met.
List the common methods of perfecting a security interest.
- Filing
- Possession
- Control
- Automatic perfection
Where is a financing statement typically filed?
Usually in the Secretary of State’s Office.
In what circumstances is a financing statement filed in the Office of the County Clerk?
When the collateral consists of fixtures.
What law governs the perfection of a security interest?
The law of the jurisdiction where the debtor is located.
Where is an individual debtor located?
At the individual’s principal residence.
How is a non-registered organization debtor located?
At its place of business or its chief executive office if it has multiple places of business.
What defines a registered organization?
One for which a state maintains a public record showing the organization to have been organized.
What is required for a financing statement to be effective?
It must be filed in the correct office in the correct state.
What must a financing statement include?
- The name of the debtor
- The name of the secured party
- A description of the collateral
What is a supergeneric collateral description in a financing statement?
Sufficient for a financing statement but not for a security agreement.
What is a fixture in the context of secured transactions?
Goods related to real property such that an interest in them passes under real estate law.
What additional requirements must a fixture filing meet?
- Indicate it covers fixtures
- Indicate it is to be filed in real property records
- Provide a description of the real property
- Provide the real property owner’s name if different from the debtor
What happens if a financing statement is filed incorrectly or lacks required information?
It is ineffective and does not perfect a security interest.
What is the effect of minor errors in a financing statement?
The financing statement will still be effective unless the errors make it seriously misleading.
What is the significance of a debtor’s name being seriously misleading?
Failure to sufficiently provide the name of the debtor is seriously misleading.
What is the timing of filing a financing statement?
It can be filed before a security agreement is made or a security interest attaches.
What happens to a financing statement if the collateral is disposed of?
It remains effective even if the collateral is sold, exchanged, or otherwise disposed of.
What is the automatic perfection rule for proceeds?
A perfected security interest in proceeds is provided automatically unless specified otherwise.
For how long does automatic perfection for proceeds continue?
For only 20 days after attachment.
What happens if a debtor changes its name?
The financing statement will remain effective only for collateral acquired within four months unless amended.
What is the duration of a filed financing statement?
Effective for five years after the date of filing.
