Perfection

Question 1

What is perfection?

Answer 1

Perfection is best understood as a publicity device. It is something that the secured party does to put the world on record or synomously constructive notice of the secured party’s existence. Proper perfection helps to protect the secured party from competing creditors.

Question 2

How does a creditor attain perfection?

Answer 2

1. By the secured party’s taking possession of the collateral;
2. Automatic perfection for purchase money security interests (PMSIs) in consumer goods only.
3. The most common route: the secured party files notice of the security interest in the public records. The security agreement could be filed, but that’s rare. It’s usually a document called a financing statement, whose only purpose is to make follow up inquiries.

Question 3

What is a purchase money security interest (PMSI)?

Answer 3

It is a security interest that enables the debtor to purchase goods.

Question 4

What are the required contents of a financing statement?

Answer 4

Buzzwords: simple and sparse.

The financing statement need only contain:

1. debtor’s name and address;
2. creditor’s name and address; AND
3. description of collateral.

Super-generic description of the collateral is ok.

Question 5

Where is the financing statement filed?

Answer 5

Filing is done centrally, with the Secretary of State, in the state where debtor is located.

If debtor is an individual, he or she is located in their principle residence.

If debtor is a registered organization (e.g. corporation), it is located in the state under whose laws it is organized.

The exception to central filing - if collateral is timber, mineral or fixtures, file locally in the county where the real property is located.