Perfection of the Security Interest

Question 1

True or false: A security interest is enforceable when it attaches.

Answer 1

True

Question 2

What does perfection of a security interest do?

Answer 2

Perfection of the interest only ENHANCES the secured party’s rights to the property serving as collateral.

Question 3

Can a security interest be perfected if it does not attach?

Answer 3

If the security interest does not attach, then it cannot be perfected.

Question 4

What are the three types of perfection?

Answer 4

Generally, there are three different methods in which a security interest may be perfected:

1. Filing;
2. Taking possession
3. Automatic perfection

Question 5

What is perfection by filing?

Answer 5

The filing of a financing statement or the security agreement with the state is the primary method of perfection.

Question 6

Who can file a financing statement?

Answer 6

The filing MUST be filed by an authorized party (authorization is presumed by the debtor’s authentication of the security agreement.).

Question 7

How do minor errors affect a financing statement?

Answer 7

Minor errors will not invalidate the financing statement unless the errors make it seriously misleading.

Question 8

What must a financing statement include?

Answer 8

The filing must contain:

1. The debtor’s name;
2. The secured party’s name
3. An adequate description of the collateral; And
4. The filing fee.

Question 9

What is perfection by taking possession?

Answer 9

A secured party may perfect a security interest in negotiable documents, goods, instruments, or money by taking mere possession of such items.

Question 10

What is automatic perfection?

Answer 10

The following security interest are perfected automatically when they attach:

a. A purchase money security interest in consumer goods; AND

b. Proceeds from the sale of collateral

Question 11

What is the only way that perfection in a deposit account can occur?

Answer 11

A security interest in a deposit account may only be perfected by control. To control a deposit account, a secured party must:
* be the bank where the account is maintained;
* become the customer of the bank with respect to the deposit account; or
* have an authenticated agreement among itself, the bank, and the debtor, directing the
bank that funds may be withdrawn without any further consent from the debtor