Perfection of a Security Interest Flashcards
What are the five methods of perfection?
- Filing
- Possession
- Control
- Automatic Perfection (PMSI)
- Temporary Perfection
What is the proper timing of perfection?
Perfection cannot be completed until the security interest has been attached to the collateral. Therefore, if you attempt to perfect your interest prior to the attachment, it will not be perfected until the attachment occurs.
Automatic Possession
This method applies only to a PMSI (sell on credit + retain security interest) which will be perfected immediately upon attachment.
See exceptions.
What are exceptions to a PMSI automatically perfecting?
- Sale of a motor vehicle: Requires notation on the vehicles certificate of title.
- Fixtures: PMSI’s will have priority over an encumbrance of the real estate only if the PMSI holder files a fixture filing.
Perfection by Taking Possession
A security interest can be perfected in most jurisdictions by simply taking possession. The security interest is considered perfected when the secured party actually takes possession of the collateral and will remain perfected so long as the secured party retains possession.
What types of Collateral cannot be perfected by possession?
- General intangibles
- Deposit Accounts
- Nonnegotiable documents,
- Electronic chattel paper,
- Certificate of title goods, and
- Accounts.
Perfection by Control
A security interest in investment property, nonconsumer deposit accounts, and electronic chattel paper may be perfect by control.
Note: non-consumer deposit accounts can ONLY be perfected by control.
How does a secured party take control of nonconsumer deposit accounts?
- Creditor is the bank that maintains the deposit account and automatically has control over the deposit account.
- The Deposit account is in the secured party’s name, or
- Establishing an agreement between the creditor, debtor, and the bank maintaining the account, that the bank will comply with the secured party’s orders regarding the deposit account without requiring the debtor’s consent.
How does a secured party take control of an investment property?
A secured party has control over investment property when the secured party has taken whatever steps are necessary to be able to have the investment property sold without further action from the owner.
How does a secured party take control of Electronic Chattel Paper?
When a system put in place shows the transfer of interests in chattel paper reliably establishes the secured party as an assignee.
How do you perfect a security interest in motor vehicles?
For consumers: the Title can only be perfect by notation on the certificate of title issued by the state.
For Car Dealerships: A security interest created by dealers in vehicles held in inventory for sale or lease are perfected by filing a financing statement under the ordinary Code rules, even if a certificate of title is covering the vehicle is outstanding.
Example: Dealer purchases 1,000 cars, we don’t want them at the DMV all day long.
Perfection by Filing
A secured party can perfect by filing (in writing or electronically) a financing statement, which must contain:
- The debtor’s name and mailing address
- The secured party’s name and mailing address, and
- A description of the collateral covered by the financing statement.
What is sufficient for the Debtor’s name?
For individuals
- Debtors name on an unexpired license, or
- If expired, the debtors individual name or personal name and surname (undefined by article 9, likely what is on their license).
True or False: A PMSI in a non-consumer good automatically attached
False: Only consumer goods automatically attach. IF it is not a consumer good, inventory, or farm equipment, then it is business equipment. WHich at that point, the PMSI is perfected if a financing statement was filed within 20 days of debtor taking possession.
What is the Original Use test?
A debtor’s original intended use of collateral governs the collaterals’s classifications.
