Perfection of Security Interest

Question 1

Requirements for perfection?

Answer 1

1) attachment
2) perfection via authorized method

Question 2

What are the 5 methods of perfection?

Answer 2

1) filing
2) taking possession of collateral
3) control
4) automatic perfection
5) temporary perfection

Question 3

When is perfection effective?

Answer 3

When perfection method executed AND attachment occurs

Question 4

When might perfection be automatic?

Answer 4

For PMSIs in consumer goods; perfected as soon as PMSI attaches (except for motor vehicles)

Question 5

What is perfection by taking possession (pledge)?

Answer 5

Where perfection occurs by taking possession of collateral (most often tangible goods)

Question 6

When is perfection by possession effective?

Answer 6

Moment security interest is possessed AND continues as long as possession retained

Question 7

What collateral CAN’T be perfected via pledge?

Answer 7

1) general intangibles
2) deposit accounts
3) electronic chattel paper
4) certificate of title goofs
5) accounts

Question 8

What collateral can be perfected by control?

Answer 8

security interests in investment property, nonconsumer deposit accounts (exclusively), and electronic chattel paper

Question 9

How are nonconsumer deposit accounts perfected via control?

Answer 9

Bank automatically has control; otherwise, by 1) putting deposit in creditor’s name OR control agreement

Question 10

How does perfection for motor vehicles work?

Answer 10

notation on state-issued certificate of title for vehicle (exception for dealers’ inventory)

Question 11

When can perfection by filing be used?

Answer 11

For all collateral except deposit accounts AND money

Question 11

What is perfection by filing?

Answer 11

where secured party files financing statement containing:
1) debtor’s name/address
2) secured party’s name/address AND
3) description of collateral

Question 12

When a mistake regarding debtor’s name NOT seriously misleading?

Answer 12

If it would be discovered in a filing office search under debtor’s correct name using office’s standard search logic

Question 13

What if debtor’s name changes?

Answer 13

Financing statement still good for 4 months

Question 14

How must collateral be described for perfection by filing?

Answer 14

Must reasonably identify collateral (supergeneric IS OKAY)

Question 15

What law governs perfection?

Answer 15

Generally, law of state where debtor located

Question 16

Where is debtor located?

Answer 16

Individual: principal residence
Registered org.: state under whose laws organized
Unregistered org.: principal place of business

Question 17

What happens to collateral if debtor relocates?

Answer 17

Becomes unperfected 4 months after debtor’s move unless secured party files financing statement in new jurisdiction before period ends

Question 18

What happens to collateral if transferred to new owner in different state?

Answer 18

Becomes unperfected 1 year after move unless secured creditor files financing statement in new jdxn before periods ends

Question 19

What happens if collateral perfected via possession moves?

Answer 19

Remains perfects without further action so long as security interest also perfected by possession under laws of new state

Question 20

What is a continuation statement?

Answer 20

Allows financing statement to remain effective for an additional 5 years

Question 21

How long is a financing statement good for? When must a continuation statement be filed?

Answer 21

5 years; within 6 months before lapse

Question 22

What is a termination statement?

Answer 22

terminates financing statement

Question 23

When is a termination statement required?

Answer 23

Within 20 days of demand of debtor IF no outstanding debtor obligations and no commitment from creditor to make further advances OR debtor didn’t authorize filing of initial financing statement

Question 24

What is perfection for proceeds?

Answer 24

Secured party automatically has perfected SI in any proceeds of collateral for 20 days following receipt of proceeds IF secured party has perfect interest in collateral

Question 25

When will SI in process continue to be perfect beyond 20-day period?

Answer 25

If 1) proceeds are identifiable cash proceeds; 2) SI in original collateral perfected via filing, SI in this collateral would filed in same place, & proceeds not purchased with cash proceeds of collateral; OR 3) SI in proceeds perfected within 20-day period

Question 26

What happens if debtor changes their use of the collateral?

Answer 26

Filed financing statement remains effective to perfect the security interest; creditor has NO DUTY to monitor