R7- Secured Transactions

Question 1

When does a security interest attach; or become legally enforceable?

Answer 1

• Secured interest must be supported by consideration given.
• Debtor must actually own the rights to the collateral or have possession.
• Secured interest must be recorded

Question 2

What are the Characteristics of Perfection of Interest in a secured transaction?

Answer 2

• Gets higher priority over others claiming rights to collateral after the perfection takes place
• Attachment must take place BEFORE perfection

Question 3

How does Perfection occur in a secured transaction?****

Answer 3

• By filing a financing statement
• By possessing the collateral
• Control
• Automatic Perfection
• Temporary Perfection

Question 4

When does Automatic Perfection occur in a secured transaction?***

Answer 4

• PMSI
• Consumer Goods for Personal Use

Ex-Store sells a consumer good on credit

• Store retains security interest

Question 5

What are the priority rules for Payment in a secured transaction?

Answer 5

If two parties are perfected; then the first one to file wins

If neither party is perfected; then the first one to attach wins

Question 6

What are the advantages of a creditor holding a lien in a secured transaction?

Answer 6

• Creditor holds priority over claims to collateral vs. unperfected security interests
• Beats perfected security interests filed after lien attachment

Exceptions: Purchase money security interest; which has a 10 day grace period to be filed

Buyers purchasing in the ordinary course of business are immune from security interests held by merchants

Question 7

What is a Purchase Money Security Interests?

Answer 7

• Has priority over all other types of security interests in the same collateral:

– If the PMSI is properly perfected

Question 8

What are the 3 Requisites for Attachment?**

Answer 8

• Authenticated record OR Creditor’s taking Possession
• Value
• Debtor must have Rights in the collateral

Question 9

What are the Priority Rankings, Highest to Lowest?****

Answer 9

• Buyer in the ordinary course of business
• Perfected PMSI
• Perfected Security Interest
• Unperfected Security Interest
• Debtor

Question 10

What is the Filing Grace Period for Non-inventory PMSI?

Answer 10

• Priority if Filing within a 20 day Grace Period

Question 11

The secured party may sell or lease Collateral after a default or repossession by?

Answer 11

• Commercially reasonable
• Debtors/others must generally be given notice of the sale
• Sale wipes out all Subordinate interests, but subject to superior interests
• May Redeem if pays off before the sale