Security Interests in Property

Question 1

What are the 3 requirements of attachment?

Answer 1

1) parties agree to create a security interest (either authenticated sec. agreement or creditor taking possession of collateral)
2) Debtor must have rights to the collateral
3) Creditor must give Value

Question 2

When a debtor defaults, what are 2 of the remedies of the secured creditor?

Answer 2

1) Proceed against the collateral

2) Obtain a general judgment against the debtor

Question 3

What happens when security interest in collateral is perfected and the collateral is subsequently moved to another state?

Answer 3

Collateral temporarily perfected for 4 months in the state into which it was moved

(TEMPORARY PERFECTION)

Question 4

When consumer good collateral is repossessed and XX% has been paid, what happens?

Answer 4

60% must be paid

Creditor MUST sell collateral within 90 days (unless debtor says otherwise,) and can hold debtor liable for any deficiency in amount

Question 5

When must a PMSI be perfected?

Answer 5

Within 20 days of debtor getting possession of non-inventory goods.

Question 6

What situation illustrates a secured party perfecting its security interest by taking possession of the collateral?

Answer 6

Pawnbroker lends money in exchange for item of personal property,

which can be redeemed later on by debtor.

Question 7

Priorities in collateral? (Hint - 5)

Answer 7

1) Buyer in O.C.B., holders in due course of negotiable instruments, holders of possessory liens
2) Holder of properly perfected PMSI in the collateral
3) Holder of properly perfected interest in (or judicial lien to) collateral
4) Holder of unperfected security interest in collateral
5) Debtor

Question 8

What are the 5 methods of perfection (you can choose any 1 depending on circumstance)?

Answer 8

1) File a statement (EG financing statement)
2) Take possession of collateral (this doesn’t work for accounts, deposit accounts, non-negotiable documents, general intangibles (EG a patent), even if there is a tangible representation)
3) Control (EG for stocks and bonds)
4) Automatic Perfection (PMSI in consumer goods or small-scale assignment of accounts ONLY)
5) Temporary Perfection (continuous perfection 20 days from debtor receipt of proceeds; 4-month grace period)

Question 9

How does a security interest become enforceable?

Answer 9

It attaches to collateral.

Question 10

Proceeds from a default sale?

Answer 10

1) Expenses/ etc. of sale
2) Pay creditors with a security interest in order of priority
3) Surpluses paid to “junior creditors” followed by debtors