Perfection of Security Interest

Question 1

What is attachment?

Answer 1

• When a security interest becomes enforceable against the debtor w/ regards to the collateral.
• It is a precondition for perfection

Question 2

What are the available methods for perfection?

Answer 2

1) Filing
2) Possession
3) Control
4) Alternative Perfection Systems
5) Automatic Perfection

Question 3

What are the required contents for a financing statement?

Answer 3

1) Name of the debtor
2) Name of the Secured Party
3) Description of the collateral

Question 4

What is required for a filing?

Answer 4

Must be filed in the central financing office of the appropriate state where the debtor is located.

Question 5

What types of property can’t be perfected by filing?

Answer 5

• Deposit Accounts
• Money
• Letters of credit
• Collateral subject to other collection methods like cars and airplanes

Question 6

What is the appropriate filing location for a corporation?

Answer 6

Where they are incorporated or registered

Question 7

What is the appropriate filing location for an individual?

Answer 7

Principal residence except when its real property then you file in the situs.

Question 8

What does the debtor have to do with regards to the filing statement?

Answer 8

The debtor must authorize the filing statement.

Can be done when they authenticate a security agreement because this authorizes the debtor to file a financing statement.

Question 9

What is the result if a lender fails to obtain authorization to file a security agreement?

Answer 9

secured party can be liable for actual and statutory damages.

Question 10

What is required for the name of the debtor?

Answer 10

• must be the correct legal name

Corporations: name in the articles of incorporation or last legal name on record w/ the state

Individuals: non-expired drivers license or other state ID. Minority rule allows something other than this

Question 11

How must the collateral be described?

Answer 11

• can cut and paste from the security agreement
• can include a super generic description
• doesn’t have to list that it includes after-acquired property.

Question 12

What happens if a piece of collateral is described in the security agmt but not in the financing statement?

Answer 12

Then the party’s security is attached but not perfected.

Question 13

When will an error in the financing statement affect perfection?

Answer 13

When it makes the financing statement seriously misleading.
- errors in the debtor’s name are almost always seriously misleading, but if a search would uncover the name then its notmisleading

Question 14

How long does a financing statement last?

Answer 14

A financing statement lasts 5 years unless its continued.

Question 15

How is a financing statement extended?

Answer 15

Through a continuation statement filed w/in 6 mos. before the financing lapses.

Question 16

How do you void a financing statement?

Answer 16

Through a termination statement

Question 17

What happens if you re-file a financing statement immediately after it expires?

Answer 17

You lose your place in priority.

Question 18

How does one perfect a security interest in money?

Answer 18

Through possession.

Question 19

When is perfection by possession available?

Answer 19

When the collateral is a tangible item.

Question 20

What types of collateral can be perfected by control?

Answer 20

Intangible collateral: deposit accounts, investment accounts, letter of credit rights.

Question 21

How are deposit accounts perfected?

Answer 21

Only through perfection by control

Question 22

How are letter of credit rights perfected?

Answer 22

Only through control

Question 23

What is an alternate perfection system?

Answer 23

A state certificate of title statute - cars & motor vehicles
- the security interest is placed on the certificate of title

Question 24

When does automatic perfection occur?

Answer 24

• a PMSI in consumer goods except when a certificate of title statute applies
• a casual or isolated sale of accounts that aren’t all or a significant portion of the accounts
• Sale of Payment Intangible
• Sale of promissory note

Question 25

What is temporary automatic perfection?

Answer 25

It gives the secured party a window of time to discover changes to their security interest and re-file or file for an extension.

Question 26

When does temporary automatic perfection occur?

Answer 26

• debtor changes legal name (4 months) - only affects collateral acquired after name change
• debtor moves out of state (4 months)
• collateral moves out of state (1 year) - lose place
• collateral transferred to a new debtor (1 year) - lose place

Question 27

What is the perfection rule for proceeds?

Answer 27

• Default is that they are initially perfected for 20 days and may be extended depending on the circumstances

Perfection will lapse unless one of the following happens:
a. Amend financing statement to include proceeds or financing statement already includes proceeds

b. they are cash proceeds in which case perfection lasts as long as the cash is identifiable (cash, checks + deposit accounts)

Question 28

When does a perfected security interest in proceeds last indefinitely?

Answer 28

When:

1) a filed financing statement covers the original collateral
2) proceeds are collateral in which a security interest may be perfected.
3) proceeds re not acquired w/ cash proceeds.