Purchase Money Security Interest

Question 1

PMSI Rule Statement

Answer 1

A purchase money security interest is a special type of security interest that has different rules regarding perfection and priority. A PMSI is goods exists when a secured party sold goods to the debtor and the debtor incurs an obligation to pay the secured party all or party of the purchase price. A PMSI in goods other than inventory or livestock prevails over all other security interests in the collateral, even if they were previously perfected, if the security interest is perfected when the debtor receives possession of the collateral or within 20 days.

Question 2

What are the 2 components of a PMSI?

Answer 2

(1) Value (i.e. loan) given that allows debtor to acquire goods. (2) The goods acquired secures the loan.

Question 3

Perfection in a PMSI

Answer 3

PMSIs in consumer goods automatically perfect!

Question 4

Priority in PMSI in goods (other than inventory and livestock)

Answer 4

PMSIs in goods have PRIORITY over all other security interests if secured party perfects within 20 days of debtor receiving the goods.

If PMSI fails to perfect within 20 days, apply the first in time to file or perfect rule.

Question 5

Priority in PMSI in Inventory

Answer 5

A PMSI in inventory/livestock will take priority over all other security interests if the PMSI perfects within 20 days of delivery to the debtor AND the PMSI sends out an authenticated notification to all other secured parties.

Question 6

Proceeds

Answer 6

If not inventory, priority extends to proceeds.

If inventory, priority only extends to proceeds that are cash payments.

Question 7

PMSI vs. PMSI priority

Answer 7

A seller PMSI > Lender PMSI

Otherwise, apply the first to file or perfect rule.