Perfection of Security Interest

Question 1

Methods of Perfection

Answer 1

i) Filing of a financing statement;
ii) Possession of the collateral;
iii) Control over the collateral; or
iv) Automatic perfection

Question 2

Financing Statement

(elements)

Answer 2

1) The debtor’s name;
2) The name of the secured party; and
3) The collateral covered by the financing statement.

Question 3

Collateral related to real property

(additional financing statement requirements)

Answer 3

1) An indication that it covers this type of collateral;
2) An indication that it is to be filed in the real-property records;
3) A description of the real property to which the collateral relates; and
4) The name of a record owner, if the debtor does not have an interest of record in the real property.

Question 4

Mortgage as a financing statement

Answer 4

A mortgage may serve as a financing statement, provided it contains the necessary information.

Question 5

“Only-if” rule

(majority rule)

Answer 5

The financing statement must reflect the name on the debtor’s current driver’s license or ID card.

Question 6

“Safe harbor” rule

(minority rule)

Answer 6

The financing statement may include the debtor’s “individual name,” the name on the debtor’s driver’s license, or the debtor’s surname and first personal name.

Question 7

Debtor’s trade name

Answer 7

Identification of the debtor solely by the debtor’s trade name is insufficient.

Question 8

Filing Location

Answer 8

For collateral that may be perfected by filing, the financing statement must be filed with the secretary of state (“central filing”) of the state of the debtor’s location.

Question 9

Length of Perfection

(financing statement)

Answer 9

A financing statement is generally effective for five years.

Question 10

Justified refusal

(financing statement)

Answer 10

When the filing office’s refusal to accept a financing statement for filing is justified, the financing statement is treated as having not been filed.

Question 11

Unjustified refusal

(financing statement)

Answer 11

If the filing office’s refusal to accept a financing statement for filing is unjustified, then the financing statement is treated as having been filed.

Question 12

Continuation Statement

Answer 12

The continuation statement must be filed within six months prior to the expiration.

Question 13

Possession

Answer 13

A secured party may perfect a security interest in most collateral by taking possession of the collateral. This interest remains perfected only while they retain possession.

Question 14

Control

Answer 14

A secured party may perfect a security interest in specific collateral by taking control of the collateral. The security interest remains perfected only while the secured party retains control.

Question 15

Deposit Account

(control)

Answer 15

A security interest in a deposit account can only be perfected by control.

Question 16

PMSI in consumer goods

(perfection)

Answer 16

A PMSI in consumer goods is automatically perfected upon attachment.

Question 17

Other automatic permanent perfections

Answer 17

(i) The casual or isolated assignment of accounts or payment intangibles that does not transfer a significant part of the assignor’s outstanding accounts or payment intangibles; and

(ii) Sale of a payment intangible or promissory note.

Question 18

New value

(temporary perfection)

Answer 18

If new value is given under an authenticated security agreement, etc., it is automatically perfected for 20 days.

Question 19

Movement of the debtor

Answer 19

If a debtor moves to another state, a perfected security interest remains perfected for four months after the debtor’s change in location.

Question 20

Movement of collateral

Answer 20

If collateral is transferred to a person located in another state who becomes a debtor, then it remains perfected for one year.

Question 21

Effect of a lapse of perfection

Answer 21

The security interest generally ceases to be perfected prospectively.

Question 22

Temporary perfection

(proceeds)

Answer 22

If the security interest in the original collateral is perfected, then a security interest in proceeds is temporarily perfected for 20 days from the time it attaches.

Question 23

Same office

(indefinite automatic perfection)

Answer 23

A perfected security interest in proceeds may continue indefinitely when:

1) A filed financing statement covers the original collateral;
2) The proceeds are collateral in whcih a security interest may be perfected by filing in the office in which the financing statement has been filed; and
3) The proceeds are not acquired with cash proceeds.

Question 24

Perfection pursuant to financing statement

(indefinite automatic perfection)

Answer 24

If the original financing statement is broad enough to encompass the proceeds or the secured party takes the necessary steps to amend the financing statement to cover the proceeds within the 20-day period, the security interest in the proceeds continues to be perfected.

Question 25

Cash proceeds

(indefinite automatic perfection)

Answer 25

If the proceeds are identifiable cash proceeds and the security interest in the original collateral is perfected, the perfected security interest in the proceeds continues indefinitely, even though the security interest in the original collateral subsequently ceases to be perfected.