Secured Transactions

Question 1

What do you need for attachment?

Answer 1

NEED ALL THREE:

1. Property owned by the debtor (they have rights to the property)
2. Interest is created (two ways: i. actually take possession of the goods… think pawn shop, OR ii. signed security agreement)
3. Give value to the debtor (a promise isn’t good enough; a line of credit is valid value… think money, goods, services, credit, line of credit)

Question 2

What does perfection do?

Answer 2

Provides notice to third parties that a security interest exists

Question 3

How do you achieve perfection

Answer 3

Three ways (just need one of these):

1. Filing a financing statement (describes debt, collateral, and it is signed)
2. Automatic perfection –> PMSI in consumer goods
   Loophole - if debtor/consumer sells to another consumer, second consumer gets it free of automatic perfection
   Creditor can close loophole by filing financing statement before second consumer gets physical possession of the collateral, or within 20 days of ATTACHMENT
3. Taking possession

Question 4

How long does financing statement last?

Answer 4

5 years. You can renew, but have to do it within 6 months before it expires.

Question 5

What happens if collateral is taken to a new state?

Answer 5

Creditor must perfect in new state within four months or lose their priority

Question 6

What is the inventory rule?

Answer 6

To encourage sale/commerce, if you are buying an item and it is INVENTORY as to the seller, you (the buyer) get it free of any PRIOR interest (not free of the interest you create). This applies even if the buyer is aware of prior interests.

Question 7

What is the proper jx for filings?

Answer 7

Determined by debtor’s location (not where the collateral is)