Perfection of Security Interests

Question 1

What is the difference between attachment and perfection?

Answer 1

Attachment establishes rights as between the secured party and the debtor; whereas perfection establishes priority as between the secured party and the “rest of the world” e.g., other third parties/security interest holders.

Question 2

What are the FIVE methods of perfection?

Answer 2

1. Filing;
2. Taking possession of the collateral;
3. Control;
4. Automatic perfection; and
5. Temporary perfection

Question 3

What is the timing of perfection?

Answer 3

• A security interest is not enforceable against any party until it has attached to the collateral
• So, perfection cannot be completed until it has attached

Question 4

Which categories of collateral can be perfected by filing?

Answer 4

ALL kinds of collateral except deposit accounts and money.

• Note, however, that if DA or money is claimed as proceeds of other collateral, a filed security interest in the og collateral perfects a security interest in the DA or money as proceeds

Question 5

What is “notice” filing?

Answer 5

The Code simply requires “notice” filing. This contemplates that once a third party discovers that a debtor’s property is covered by a financing statement, she will make further inquiry about the security agreement covering the party. Notice is given by the filing of a financing statement.

Question 6

What must the “financing statement” contain?

Answer 6

1. The name and mailing address of the debtor;
2. The name and mailing address of the secured party;
3. An indication of the collateral covered by the financing statement; and
4. If the financing statement covers real-property-related collateral, the financing statement must also indicate that it is to be filed in the real property records, provide a description of the real property, and name the record owner if someone other than the debtor

Question 7

How are financing statements indexed?

Answer 7

They are indexed under the debtor’s name.

Question 8

What happens if there are errors in the debtor’s name on the financing statement?

Answer 8

Minor errors will NOT invalidate the financing statement, but the statement must NOT contain any seriously misleading errors.

Question 9

What name must be included on the financing statement if the debtor is an individual?

Answer 9

If the debtor is an individual and has an unexpired driver’s license or unexpired personal identification cared, a financing statement filed in Florida MUST include the name as indicated on the license or card.

• If the debtor does NOT have such a license or card, then the financing statement MAY include the debtor’s individual name or the debtor’s personal name and surname

Question 10

What name must be included on the financing statement if the debtor is a registered organization?

Answer 10

If the debtor is a registered organization, the debtor’s name is insufficient if it does NOT match the name on the public organic record most recently filed in the jurisdiction of organization

• Use of the debtor’s trade name is INSUFFICIENT

Question 11

When is a financing statement NOT seriously misleading?

Answer 11

A financing statement is NOT seriously misleading if it would be discovered in a filing office search under the debtor’s correct name, using the filing office’s standard search logic, if any.

• Because financing statements are NOT indexed under the secured party’s name, errors in the secured party’s name will NOT make the financing statement seriously misleading

Question 12

What happens should the debtor undergo a name change?

Answer 12

If the debtor’s name as indicated on a filed financing statement becomes insufficient and makes the financing statement seriously misleading (cannot be discovered), the financing statement is effective only against collateral acquired by the debtor before the name became insufficient AND within four months after.

• The secured party must refile using the correct name to perfect a security interest in collateral acquired after the four-month period

Question 13

What if the debtor and secured party’s addresses are NOT included in the financing statement?

Answer 13

If a financing statement that does not contain the debtor’s or secured party’s mailing address is accepted by the filing office, the financing statement IS effective despite the lack of the address.

Question 14

When does a financing statement sufficiently indicate the collateral?

Answer 14

A financing statement will sufficiently indicate the collateral if it identifies it specifically or identifies it by category, type, quantity, computational formula, or any other method in which the identity of the collateral is objectively determinable.

• Can use supergeneric classifications

Question 15

Does the debtor need to authorize filing of the financing statement?

Answer 15

For a financing statement to be effective, the debtor must authorize it in an authenticated record.

• The debtor may authorize the financing statement after it is filed as long as the debtor eventually authorizes it
• The debtor authorizes the financing statement if she authenticates the financing statement OR authenticates a security agreement covering the same collateral as the financing statement

Question 16

Does the financing statement need to mention after-acquired property in order to perfect in such?

Answer 16

No. The financing statement need NOT mention after-acquired property in order to perfect a security interest in such property if the description in the financing statement is broad enough to cover the after-acquired property

Question 17

Can the authenticated security agreement be filed as the financing statement?

Answer 17

YES, if the parties so desire.

• If filed, it must contain the requisite elements

Question 18

Where must filing take place?

Answer 18

Generally, filing must be done with the Florida Secured Transaction Registry.

Question 19

Where must security agreements re: timber to be cut, minerals, and fixtures be filed

Answer 19

If the secured party is not certain whether particular collateral is a fixture. In such cases, the only safe procedure is to file both in the office of the clerk of the circuit court and with the Florida Secured Transaction Registry

Question 20

Where must a creditor of a transmitting utility file?

Answer 20

Can perfect a security interest on the utility’s poles and towers by filing with Florida’s Secretary of State, even though the collateral could be considered a fixture.

Question 21

How long is the original financing statement effective?

Answer 21

For five years.

Question 22

How long are filings for transmitting utilities and real property mortgages covering fixtures effective?

Answer 22

They are continued until terminated/released/satisfied.

Question 23

How long is a financing statement in connection with a manufactured home transaction effective?

Answer 23

30 years.

Question 24

When must a continuation statement be filed?

Answer 24

May be filed during the last six months of the effective period of a prior filing and will continue the effectiveness of the filing for five more years. (i.e. between 4.5 and 5 years)

• the debtor need not authorize the continuation statement; only the secured party

Question 25

If there is no outstanding obligation and the debtor demands termination of the financing statement, how long does the secured party have to file the termination statement

Answer 25

Generally, 20 days.

• in the case of consumer goods, the secured party must file the termination statement within one month after there is no obligation or commitment automatically, or if the debtor demands it, within 20 days of the demand

Question 26

What happens if no termination statement is filed?

Answer 26

A filing will remain effective for the whole five years, even if the original obligation for which it was filed has been satisfied.

Question 27

How are filings as to motor vehicles perfected?

Answer 27

By notation on the certificate of title issued on the state.

Question 28

How are security interests created by dealers in leased motor vehicles held in inventory perfected?

Answer 28

By filing

Question 29

Perfection by taking possession

Answer 29

A secured party may perfect a security interest in most types of collateral simply by taking possession of the collateral

Question 30

What collateral CANNOT be perfected by possession?

Answer 30

1. accounts;
2. certificate of title goods;
3. deposit accounts;
4. nonnegotiable documents;
5. ECPs;
6. general intangibles

Question 31

What does the time of perfection depend on?

Answer 31

The time by which perfection by possession occurs depends on whether the secured party has actual possession of the collateral or whether the collateral is in the hands of a bailee.

Question 32

Time of perfection where secured party has actual possession

Answer 32

The security interest is perfected from the moment of possession, and continues as long as possession is retained.

Question 33

Time of perfection where collateral in hands of bailee

Answer 33

The secured party is deemed to be in possession from the moment the bailee authenticates a record acknowledging that it is holding the collateral for the secured party’s benefit.

Question 34

Perfection by Control

Answer 34

Security interests in investment property, nonconsumer deposit accounts, and electronic chattel paper may be perfected by control

Question 35

Automatic perfection

Answer 35

In some transactions, the Code provides that the security interest is perfected simply by the attachment of the security interest, without taking any additional steps.

Question 36

How are PMSIs in consumer goods perfected?

Answer 36

A PMSI in consumer goods is perfected as soon as it attaches, EXCEPT for motor vehicles (that can only be perfected by notation on the vehicle’s certificate of title) and fixtures (a fixture filing is necessary).

Question 37

Is the security interest in the case of assignment of accounts/payment intangibles automatically perfected?

Answer 37

Yes. The security interest is perfected automatically in the case of assignments of accounts or payment intangibles that do not alone, or in conjunction with other assignments to the same assignee, transfer a significant part of the assignor’s outstanding accounts or payment intangibles.

Question 38

Is the sale of a payment intangible or a promissory note automatically perfected?

Answer 38

Yes.

Question 39

Is a security interest created by an assignment of a beneficial interest in a decedent’s estate automatically perfected?

Answer 39

Yes.

Question 40

In what three situations is a security interest in investment property automatically perfected?

Answer 40

1. the debtor is a securities intermediary;
2. if the debtor purchased the asset through a securities intermediary and has not paid the price, the intermediary has an automatically perfected security interest to secure the purchase price;
3. if one who deals in securities or similar financial assets purchases a certificated security from another such dealer under an agreement calling for delivery against payment

Question 41

For how long is a security interest in proceeds temporarily perfected?

Answer 41

For 20 days from the debtor’s receipt of the proceeds.

• becomes unperfected on the 21st day after the debtor’s receipt

Question 42

With regard to instruments, negotiable documents, or certificated securities, how long is new value given temporarily perfected?

Answer 42

A secured party who advances new value under an authenticated security agreement obtains a 20-day perfection period from the time of attachment, even though the secured party does not file a financing statement or take possession or control of the collateral.

Question 43

Interstate shipments

Answer 43

When collateral or the debtor moves from one state to another, and the location of the collateral or debtor determines which state’s law governs perfection, a security interest in the collateral that was perfected in the original state will often remain temporarily perfected in the new state.

Question 44

When will a security interest in proceeds continue to be perfected beyond 20 days?

Answer 44

1. the security interest in the og collateral was perfected by filing a financing statement, a security interest in the type of collateral constituting the proceeds would be filed in the same place as the financing statement for the original collateral and the proceeds were not purchased with cash proceeds of the collateral (same office rule)
2. the proceeds are identifiable cash proceeds (cash proceeds rule) or
3. The security interest in the proceeds is perfected within the 20-day period