Secured Transactions Flashcards
What are secured transactions?
Where a creditor received additional assurances (collateral) to insure repayment of a debt.
What are the parties of secured transactions?
Debtor: party who owes payment or obligation
Creditor or Secured Party: the party who lends, sells, or otherwise creates a security in the debtor’s collateral.
What are the requirements for a valid security agreement?
In writing: pledge exception, creditor has possession of collateral; no writing required
Signed by the debtor: not creditor
A reasonable description of the collateral: identifiable is enough.
What is a security agreement?
The security agreement is an agreement between the debtor and creditor giving the creditor a security interest in the debtor’s collateral.
What must happen in order to enforce the security interest? All 3 must occur
PIG
Property owned by the debtor ( rights)
Interest is created (one of 2 ways). Signed security agreement or take possession
Give value to the debtor.
What is perfection?
When the security interest becomes effective against 3rd parties.
Attachment must occur before perfection may occur.
What are the methods of perfection?
Must satisfy only 1
FAT
Filing a financing statement
Automatic Perfection (PMSI in consumer goods)
Taking possession of the collateral
Perfecting by Filing a financial statement:
How many years is it effective?
What is required on the financial statement?
What is not required?
Perfects any security interest (effective for 5 years and 5 year renewal)
Financing statement requirement: Names and addresses of the parties, description of the collateral.
Signatures are not required on a financing statement; the debtor’s signature is still required on a security agreement.
Perfecting by taking possession of the collateral (a pledge) applies to all collateral except:
intangibles.
Perfecting by automatic perfection occurs when and applies to who?
Auto perfection occurs upon attachment and applies to consumer goods.
Known as PMSI
What are the priorities of creditors to the collateral?
Secured creditors prevails over unsecured creditors
Secured creditor vs. Secured creditor:
-if neither creditor has perfected, then the first to attach prevails.
-Perfected prevails over unperfected.
-Perfected vs. perfected
* Generally the first to perfect prevails
*PMSI-may take priority over all other security interest, even those filed (perfected) prior to the PMSI.
*PMSI in noninventory goods (consumer goods and equipment): Secured party has 20 days from attachment to perfect. Failure to perfect within 20 days allows earlier perfected security interest to have priority over the PMSI.
PMSI in inventory: perfection must occur prior to or at the time the debtor receives the inventory.
Buyer of collateral in the ordinary course of business take free of security interest created by their immediate seller, regardless of perfection. What are the rules though?
Must be purchased in the seller’s ordinary course of business.
Purchaser may be either a consumer or a merchant
Purchaser does not take free of security interest held by prior sellers.
Knowledge by purchaser of the mere existence of the security interest is irrelevant.
If the debtor has failed to make the required payments to the secured party, what are the creditor’s rights?
RORS
Repossession
Obtain a judgment against a debtor.
Sale of the Collateral
Retention of Collateral
What are the rules for the sale of the collateral?
Sale may be public or private Notice must be given to debtor of sale, unless debtor has waived such notice. Priority of the proceeds of the sale: -secured party's expenses -secured party's debt -junior security interests -any remainder to debtor. Good faith purchaser for value takes free of all subordinate liens and subordinate security interests.
What are the rules for retention?
how long is the objection period?
Secured party simply keeps the collateral:
Written notice to debtor and other secured parties
Secured party may keep collateral unless objection is made within 21 days.
