R5 M6 - Secured Transactions (notes)

Question 1

What is secured Transactions?

Collateral can be personal property such as furniture, jewelry, inventory equipment, account receivable, etc.

Question 2

Which of the following requirements is not necessary in order to have a security interest attach?

A.	Value must be given by the creditor.

B.	Either the creditor must take possession of the collateral or the debtor must sign a security agreement that describes the collateral.

C.	There must be a proper filing.

D.	The debtor must have rights in the collateral.

Answer 2

Choice “C” is correct. A security interest attaches on the last to occur of the following; all three elements are required: (i) the parties must agree to create the security interest evidenced by either the creditor’s taking possession of the collateral or a written security agreement that describes the collateral and is signed by the debtor; (ii) the creditor must give value in exchange for the security interest; and the debtor must have rights in the collateral. Filing is not necessary; it is a possible method of perfecting but is not required for attachment.

Question 3

Chris exchanges his computer for an updated model. The seller of the original computer retained a security interest in the original computer for credit extended to Chris. The debt on the original computer has not been fully paid by Chris. If the seller perfected their interest in the original computer, what is the seller’s status with respect to the new computer?

A.	The seller’s interest is perfected for four months in the new computer.

B.	The seller’s perfection of the original computer transfers to the new computer.

C.	The seller’s interest is perfected for 20 days in the new computer.

D.	Once the new computer was purchased, the seller no longer has a security interest in the new computer.

Answer 3

Choice “C” is correct. A security interest is temporarily perfected in the new collateral for 20 days from the debtor’s receipt of the proceeds.

Choice “A” is incorrect. A four-month grace period is allowed when the same collateral is moved from one state to another. The creditor would have to perfect in the new state.

Choices “D” and “B” are incorrect per the above explanation.

Question 4

Step 1: Attachment
- Security interest as collateral for the creditor

• The debtor can use the same attachment (collateral) to get loans from different creditors. If he defaults they will be fighting over that attachment.

Step 2: Perfect ( I have first right to this collateral)
- Protect yourself against debtor and 3rd party
- You let other 3rd party know that you have first right to the collateral you would have to file a financing statement.

Slide 6:00

Question 5

Article 9 UCC –> Collateral (personal property) or fixtures. It can be a chandelier that can be moved from a home.

Question 6

What is the highest level of priority when it comes to perfecting?

Answer 6

Purchasing money security Interest (PMSI) - It has priority over all other types of security interest if creditors share the same collateral.

• Ex: Bank loan for an Car , Best buy credit card for a computers, dealership auto loan for a car are example of PMSI

SLIDE 11: 45

Question 7

SLIDE 12:41 PMSI CREDITOR

Question 8

What are the 3 requirement for an attachment to be satisfied?

Answer 8

1) Agreement
2) Creditor gives value
3) Debtor has rights to collateral

The agreement can be written or oral if it is written the debtor has to sign when it comes to the attachment

Question 9

Perfection of security Interest

What are the five methods of perfection?

Answer 9

-The date of perfection can never be before the date of attachment, but it can be done at the same time.

Perfection of the Security Interest

• Filing
• Taking possession of the collateral (pawn shop)
• Control ( Intangible property , investment property, stock certificate)
• Automatic Perfection –> Bank loan for mortgage, car and etc
• Temporary Perfection –> 20 days

Question 10

Perfection is the highest priority even though the other creditor attached years before but never perfected the attachment.

Answer 10

Perfection by filing of a financing statement –> The debtor gives the creditor authority to file a perfection for the attachment. The authorization by the debtor can be done orally, it can be implied or written.

Question 11

What can a Financing statement must have:

Answer 11

• Name, addresses of the debtor and creditor
• What type of collateral (such as the debtor’s inventory and equipment
• If you have multiple perfection (PMSI) than the earlier you perfect takes precedent.

Question 12

Perfection of security Interest

Possession –> Slide 2 2:00

Answer 12

Perfection by control –> Intangible Property

Take possession of certificate or the debtor has to give notice to the broker if they are no certificate

Ex: Slide 3 5:30

Question 13

Automatic perfection

Is only applicable for personal use. This is when the bank gives an individual an auto loan to purchase a vehicle for personal use. Then no filing is needed. The attachment is perfected

However, if the loan was use to resell for business purposes, the creditor (the bank) would have to file a financial statement to perfect the attachment.

slide 3 6:44

Answer 13

Temporary Perfection –> 20 day period

slide 9:04 example

Question 14

Temporary Perfection - If the proceeds moved to another state ( 4 month grace period)

slide 9:44

Question 15

Slide 5:39

-Whenever you buy property at a foreclosure make sure the person foreclosing has the highest interest in the property or else you in trouble.

-Debtor has the right of redemption even if his collateral is at an auction. He would pay all the fees associated with the auction or bankruptcy and all its creditor he owes.

Answer 15

Proceeds of a default sale are distributed in the following order

slide 4 8:45

Question 16

Retention of collateral by creditor in satisfaction of Debt

• What is a transaction not involving consumers:
• What is a transaction involving consumers:

Answer 16

• Transaction not involving consumers:
  
  • After default, a secured transaction may keep it, if its value is 80,000 but they owe 100,000 you can take 80,000 and the debtor will pay you the remaining $20,000 deficiency judgment.
• Transaction involving consumers:
  
  • After default the creditor can only take $80,000

slide 10:19

Question 17

As a creditor who has perfected his attachment, the process is to sell the collateral. If the creditor would like to keep the collateral he would have to notify the debtors as well as other secured parties.

• If the debtor owes 60% or more of the collateral the creditor cannot retain the property .

Slide 11:30