Secured Transactions Flashcards
What are the requirements necessary to have a security interest attach?
- The debtor must have signed a security agreement or the goods must be in the possession of the creditor,
- The creditor must have given “value” (i.e., consideration to support the contract, e.g., goods on credit given to buyer) to the debtor
- The debtor must have rights in the collateral.
What is a PMSI
Purchase Money Security Interest- when the C gives the D the money/credit to acquire the collateral (gives C priority over all types of security interests in the same collateral
The creditor would like to protect their interest from…
[DOTS]
Debtor (only need to attach to protect)
Other creditor claiming an interest in same collateral
Trustee in bankruptcy
Subsequent purchaser from D w/out knowledge of perfection
* Need attachment and perfection for [OTS]
What is attachment and what must occur?
[PIG]
Moment in time when security interest becomes enforceable against the D (secured party right to repossess collateral). All 3 must occur:
1. Property owned by D, obtains rights in collateral
2. Gives value to D(C > D)
3. C and D acknowledge creation of security Interest (D gives signed agreement- reasonable description of collateral, signed by D; or secured party takes possession of collateral)
Further attachment in a security agreement…
Proceeds from sale of collateral if D sells
After-acquired prop, equipment and inventory the C may attach to (can’t attach to consumer goods unless the D acquires rights w/in 10 days after secured party gives value)
Secure value in future (advances to D in the future could be included in current collateral)
What is perfection and its conditions?
[FAT]
Giving of notice to the world that the secured party has an interest in the collateral; must satisfy 1..
1. File a financing statement (listing/description of collateral;sig/address of D;name/address of C; lasts 5 years)
2. Automatic perfection- PMSI in consumer goods automatically perfected as soon as attaches
3. Take possession of collateral (pawnbroker holding collateral for a loan)
Automatic perfection
Automatic perfection- PMSI in consumer goods automatically perfected as soon as attaches
Loophole:if D sells consumer goods to another consumer, purchaser takes free of perfection “garage sale” rule; close loophole: C must file financing statement w/in 20 days of attachment (retroactive to date of attachment if w/in 20 days)
*20 day rule applies to equipment but not inventory
What is the inventory rule
If it was inventory to the seller when sold, the buyer gets it free of any prior interest (not the interest you created)
Ex>retailer buys inventory from wholesaler, manufacturer cannot go after retailer, but can go after wholesaler as long as they filed
What location determines the jurisdiction of the filing?
The debtor’s location, not the collateral
What is the order of priority among creditors
- Inventory rule
- Holder of statutory lien (depending on state)
- PMSI when attached and perfected simultaneously
- Among other perfections by order of filing (even if not perfected)
- Other perfected interest or judicial liens in order of perfection
- Order of attachment if no one perfected
If more than 1 creditor has perfected in same collateral, priority among them is…
- PMSI if C perfected and attached at same time (always the case for consumer, have to file w/in 20 days for equipment)
- Among other perfections, order of filing
- One C perfected by filing, one C perfected by possession, whoever perfected first in their own way has priority
Procedures on default of debtor
Right of redemption- D repays loan along w/ fees and penalties
Proceeds not sufficient- “w/out recourse”, lender has no further claim; “w/ recourse” D will be personally liable (deficiency judgment)
Strict foreclosure- C brings suit against D, if D doesn’t pay off then C gets title and has no obligation to sell; if C keeps prop, must give notice to D and all secured C and an objection w/in 21 days requires C to sell
* for consumer goods, C may not retain and must sell w/in 90 days if D paid at least 60%
What is a secured transaction?
A transaction in which the debtor gives to the creditor an interest in specific personal property to secure payment of the debt.
-Written security agreement must be “authenticated” by the debtor, which may include a signature and additional marks; collateral must be reasonably identified
Diff between a security agreement and a financing statement
A security agreement is a contract between a borrower and a secured lender that specifies which asset is promised as security. A financing statement is filed to give public notice of a security interest, not the security agreement.
