Secured Transactions

Question 1

What is a secured transaction?

Answer 1

A transaction intended to create a security interest in personal property or fixtures

Question 2

Debtor

Answer 2

Person who owes payment or performance of the obligation secured

Question 3

Secured Party

Answer 3

Aka creditor – lender, seller, other person in whose favor there is a security interest

Question 4

Security Agreement

Answer 4

Agreement between the debtor and secured party that creates the security interest

Question 5

Security Interest

Answer 5

Interest in personal property or fixtures that secures payment or performance of an obligation

Question 6

Collateral

Answer 6

Property subject to a security interest

Question 7

Purchase Money Security Interest (PMSI)

Answer 7

Security interest in goods

Can be seller-financed (secured party sells** goods to debtor on credit and retains security interest in goods) or financer-financed (creditor **loans funds to debtor to enable debtor to buy specific collateral and creditor takes security interest in collateral)

Question 8

After-acquired Property Clause

Answer 8

Grants security interest in property obtained in the future

Question 9

Future Advance Clause

Answer 9

Grant of security agreement securing new, future loans with same collateral

Question 10

Attachment

Answer 10

Steps legally required to give secured party a security interest in the collateral against the debtor

Creditor is not secured until attachment

Question 11

Perfection

Answer 11

Steps legally required to give secured party a security interest in the collateral that is effective against the world.

Question 12

Financing Statement

Answer 12

Document generally used to provide public notice of security interest

Question 13

What are the two types of collateral?

Answer 13

• Goods (tangible, movable, personal property)
• Intangibles/semi-intangibles

Question 14

What are the types of goods?

Answer 14

• Consumer goods (family/household use)
• Equipment (business) **DEFAULT
• Farm products (crops or livestock)
• Inventory (held for sale or lease)

Question 15

What are the types of intangibles?

Answer 15

1. Instruments (checks)
2. Documents (represents right to receive goods)
3. Chattel paper (evidences monetary obligation and a security interest in or a lease of specific goods)
4. Investment property (stocks, bonds)
5. Accounts (right to payment for property sold/services rendered)
6. Deposit account (non-consumer account maintained with a bank)
7. Commercial tort claim
8. General intangible (any other property) **DEFAULT

Question 16

If the debtor changes the use of collateral, does the financing statement remain effective?

Answer 16

Yes.

Question 17

Requirements for attachment

Answer 17

1. Parties must enter into a security agreement.
   
   1. Three requirements
2. Value must be given by secured party.
   
   1. Any consideration sufficient to support a simple contract
3. Debtor must have rights in the collateral.

Question 18

Requirements of a security agreement

Answer 18

• Must show an intent to create a security interest
• Must be authenticated (signed) by the debtor
• Agreement must contain a description of the collateral that reasonably identifies the collateral

Question 19

What does a security interest in after-acquired property reach?

Answer 19

Without an explicit clause, only the collateral the debtor had rights in at the time of signing a security agreement.

Except if the collateral is a type rapidly depleted and replenished - then automatic attachment.

Question 20

Security interest in collateral _____________ attaches to identifiable proceeds of collateral.

Answer 20

Automatically

Identifiable = proceeds can be traced back to original collateral

Question 21

Lowest intermediate balance rule

Answer 21

For commingled cash proceeds, look at the balance at the time the proceeds are deposited and ending at the time you apply the rule. The lowest balance during the time period is the secured party’s identifiable proceeds NOT exceeding the value of the proceeds.

Question 22

What are the methods of perfecting a security interest?

Answer 22

• Automatic perfection
• Taking possession
• Control
• Filing
• Temporary perfection

Question 23

A PMSI in consumer goods is perfected

Answer 23

as soon as it attaches.

Except motor vehicles

Question 24

Perfection by taking possession does not apply to

Answer 24

general intangibles, deposit accounts, nonnegotiable documents, electronic chattel paper, certificate of title goods, accounts

Question 25

Perfection by taking control is the only way to perfect \_\_\_\_\_\_\_\_\_\_\_\_\_\_.

Answer 25

Nonconsumer deposit accounts

Question 26

How do you perfect an interest in a motor vehicle?

Answer 26

Notation of the lien on the certificate of title by the state. Except if the debtor is holding the vehicle as **inventory (ie. dealer)**.

Question 27

What must a financing statement contain?

Answer 27

* Debtor's name and mailing address * Match driver's license, error cannot be seriously misleading * Secured party's name and mailing address * Description of the collateral * Reasonably identify And the debtor must **authorize** the statement

Question 28

Which state's law governs the perfection of a security interest?

Answer 28

The law of the state where the debtor is located * Individual = principal residence * Registered organization = where organized * Unregistered organization = place of business * If the debtor moves = unperfected 4 months after the move * If the collateral moves = unperfected 1 year after the move

Question 29

A secured party _______________ has a perfected security interest in any proceeds of collateral for ______ days after the receipt of the proceeds.

Answer 29

Automatically; 20

Question 30

How long is a financing statement good for?

Answer 30

5 years; may be continued for 5 more years

Question 31

Who has priority between two **secured** creditors?

Answer 31

The first to file or perfect, whichever is **earlier**.

Question 32

A PMSI in equipment has priority in a conflicting security interest in the same goods if

Answer 32

the interest is perfected before or within **20 days** after the debtor gets possession of the collateral.

Question 33

A security party prevails over a buyer unless

Answer 33

* authorized sale by the secured party * a buyer in the ordinary course of business takes free of the security interest in goods created by the buyer's seller * a buyer not in the ordinary course takes free of an unperfected security interest * in a consumer to consumer sale, the buyer takes free of the security interest if no knowledge, for value, personal use, and no financing statement filed

Question 34

What is a buyer in the ordinary course?

Answer 34

(1) in **good faith**, (2) **without knowledge that the sale violates the rights of another person** in the goods, and (3) in the ordinary course of business from a seller in the **business of selling goods of the kind purchased**

Question 35

A judgment lien creditor will prevails over a secured creditor if

Answer 35

the judgment lien creditor became such before the security interest was perfected

Question 36

A statutory lienholder has priority over a secured creditor if

Answer 36

the statutory lien holder maintains possession

Question 37

When is self-help repossession permitted?

Answer 37

if it can be done without breach of the peace (potential to lead to violence)

Question 38

Methods of repossession

Answer 38

* self-help * judicial process * rendering equipment unusable * strict foreclosure (creditor keeps collateral) * Resale (must be commercially reasonable)

Question 39

When may the debtor redeem the collateral?

Answer 39

Any time before resale by tendering fulfillment of all obligations secured by the collateral, plus any additional expenses

Question 40

What is a fixture?

Answer 40

goods permanently attached to real property.

Question 41

How do you perfect an interest in a fixture?

Answer 41

A fixture filing in the office where the mortgage on the real estate would be filed. A security interest in the fixture has **priority over all interests in the real property**. The holder can remove the fixture.

Question 42

Fixture Priority

Answer 42

Construction mortgage → PMSI filed w/in 20 days → prior real estate interest

Question 43

What is an accession?

Answer 43

Goods that are physically united with other goods in a manner that the identity of the original goods is not lost (ie. tires on a car)

Question 44

When can an accession be removed?

Answer 44

If the interest has priority over the claims of every creditor in the whole