Security Rights: Civil Law

Question 1

The pledgor is

Answer 1

the creditor to whom the principal obligation that is secured by the pledge is owed.

Question 2

What is a pledgee’s right to the fruits of the thing pledged?

Answer 2

The pledgee is entitled to receive:

(1) the fruits of the thing pledged (e.g., rent owed under a lease of an immovable that the lessor has pledged),
(2) to retain them, and
(3) to security.

Further, the pledgee may apply these fruits toward the satisfaction of the secured principal obligation. This is known as the right to fruits.

Question 3

Does a surety have a right of discussion against an obligor or obligee?

Answer 3

No. A surety does not have a right of discussion against an obligor or obligee, which means the surety cannot negotiate that the obligee seek performance from the obligor before seeking it from the surety. A surety does have the right to seek reimbursement or subrogation from the obligor, and to demand security from the obligor.

Question 4

When is a foreign judgment valid against property located in Louisiana?

Answer 4

When the judgment is rendered or recognized by a Louisiana court and proper filing has occurred.

Question 5

Three types of suretyships are recognized by law:

Answer 5

commercial (operated as a business), legal (operated by court order), and ordinary (operated as neither a commercial or legal surety).

Question 6

Is a corporeal movable susceptible to a mortgage?

Answer 6

No.

Question 7

Real security

Answer 7

Creates a special right on the part of the creditor in property—it is a specific piece of property, which can be seized using the executory process.

Question 8

possessory v. nonpossessory

Answer 8

What makes the difference here is whether the debtor give up possession of the thing to the creditor—if so, it’s a possessory security

Question 9

Volitional v. legal security

Answer 9

volitional = by contract; legal = by operation of law

Question 10

suretyship

Answer 10

an accessory contract by which a person binds himself to a creditor to fulfill the obligation of another upon the failure of the latter to do so.

Question 11

Suretyship may be established for

Answer 11

any lawful obligation, which, with respect to the suretyship, is the principal obligation.

Question 12

Can sureties be oral?

Answer 12

No. Sureties must be in writing—either act under private signature or an authentic act.

Question 13

May the intent to be a surety be tacit?

Answer 13

No, it must be express. VERY strict standard.

Question 14

Suretyship is established upon

Answer 14

receipt by the creditor of the writing evidencing the surety’s obligation. The creditor’s acceptance is presumed and no notice of acceptance is required.

Question 15

An ordinary suretyship is one that

Answer 15

is neither commercial nor legal. An ordinary suretyship must be strictly construed in favor of the surety.

Question 16

A commercial suretyship is one that

Answer 16

(1) the surety is engaged in a surety business;
(2) the principal obligor or the surety is a business corporation, partnership, or other business entity;
(3) the principal obligation arises out of a commercial transaction of the principal obligor; or
(4) the suretyship arises out of a commercial transaction of the surety.

Question 17

A legal suretyship is one

Answer 17

given pursuant to legislation,
administrative act or regulation, or court order.

Question 18

A surety, or each surety when there is more than one, is liable to the creditor for

Answer 18

the full performance of the obligation of the principal obligor, without benefit of division or discussion, even in the absence of an express agreement of solidarity.

(1) No discussion: S can’t insist that C go after D (and his assets) first.
(2) No division: If there are co-S’s, S can’t insist that C limit his recovery from S to just S’s “virile share” of the debt.

Question 19

The surety may assert against the creditor any defense to the principal obligation that

Answer 19

the principal obligor could assert, except lack of capacity or discharge in bankruptcy of the principal obligor.

Question 20

What rights does a surety have against the principle obligor?

Answer 20

reimbursement and subrogation

Question 21

Reimbursement

Answer 21

Dollar for dollar repayment of what S paid C.

Question 22

Subrogation

Answer 22

Substitution to the rights (all the rights) that C had against D.

Question 23

If the surety pays the creditor and then the obligor then pays the creditor, who can the surety seek reimbursement from?

Answer 23

A surety may not recover from the principal obligor, by way of subrogation or reimbursement, the amount paid the creditor if the principal obligor also pays the creditor for want of being warned by the surety of the previous payment. In such a case, the surety may recover from the creditor.

Question 24

What can the surety do if, within ten days after the delivery of a written demand for security, the principal obligor fails to provide the required security or fails to secure the discharge of the surety?

Answer 24

the surety has an action to require the principal obligor to deposit into the registry of the court funds sufficient to satisfy the surety’s obligation to the creditor as a pledge for the principal obligor’s duty to reimburse the surety.

Question 25

Co-sureties are those who

Answer 25

are sureties for the same obligation of the same obligor. They are presumed to share the burden of the principal obligation in proportion to their number in the absence of a contrary agreement.

Question 26

A surety who pays the creditor may proceed directly or by way of subrogation to recover from his co-sureties the share of the principal obligation each is to bear. If a co-surety becomes insolvent

Answer 26

his share is to be borne by those who would have borne it in his absence.

Question 27

A surety who pays the creditor more than his share may recover

Answer 27

the excess from his co-sureties in proportion to the amount of the obligation each is to bear as to him. If a surety obtains the conventional discharge of other co-sureties by paying the creditor, any reduction in the amount owed by those released benefits them proportionately.

Question 28

The modification or amendment of the principal obligation, or the impairment of real security held for it, by the creditor, in any material manner and without the consent of the surety, has the following effects:

Answer 28

(a) an ordinary suretyship is extinguished; and
(b) a commercial suretyship is extinguished to the extent the surety is prejudiced by the action of the creditor, unless the principal obligation is one other than for the payment of money, and the surety should have contemplated that the creditor might take such action in the ordinary course of performance of the obligation.

Question 29

Where the suretyship secures indefinite future obligations (e.g., a revolving line of credit), the surety may

Answer 29

terminate the suretyship by notice to the creditor.

However, the termination does not affect the surety’s liability for obligations incurred by the principal obligor, or obligations the creditor is bound to permit the principal obligor to incur at the time the notice is received, nor may it prejudice the creditor or principal obligor who has changed his position in reliance on the suretyship. This means that a suretyship is revocable by the surety until the creditor or debtor acts upon it.

Question 30

A pledge is an

Answer 30

accessory real right established by contract over certain property to secure performance of an obligation. It is a mechanism for creating real security in movable property.

Question 31

The pledgor is

Answer 31

the person who owns (or has some other right) in the pledged thing and who pledges it to secure his (or someone else’s) obligation toward the pledgee; the pledgee is the creditor to whom the principal obligation that is secured by the pledge is owed.

Question 32

A thing susceptible of pledge

Answer 32

(1) A movable that is not susceptible of encumbrance by an Article 9 “security interest.”
(2) The lessor’s rights in the lease of an immovable and its rents.
(a) It’s only the lessor’s rights, as opposed to the lessee’s rights, that may be pledge. True, even the lessee can put his rights up as collateral. But the vehicle for doing that is a mortgage, not a pledge.
(3) Things specifically made susceptible of pledge by special legislation.

Question 33

The bottom line, then, is this: right now, pledge can be established only on:

Answer 33

(1) rights created by policies of insurance other than life insurance (e.g., property insurance, casualty insurance, or liability insurance), and (2) a lessor’s rights in the lease of an immovable and its rents.

Question 34

A pledge may be given to secure the performance of

Answer 34

any lawful obligation, including an obligation for a performance other than the payment of money, an obligation owed by someone other than the pledgor, and an obligation that will not arise until the future. These “future obligations” include those incurred pursuant to a “revolving line of credit” arrangement.

Question 35

If the pledged thing is a corporeal movable, for the pledge to take effect between the parties, the pledged thing must be:

Answer 35

delivered—no writing is required. In fact, a writing without delivery is ineffective.

Question 36

If the pledged thing is a incorporeal movable or the lessor’s rights under a lease of an immovable, for the pledge to take effect between the parties, the pledged thing must be:

Answer 36

in writing; either a juridical act under private signature or otherwise

Though this “writing” may be in “authentic form”, that is not required; an “act under private signature” is sufficient.
(b) Only the pledgor need sign the writing, for the acceptance of the pledgor is presumed.

Question 37

To be effective against third parties, the pledge must

Answer 37

a. be effective between the parties.

b. In addition, the pledge agreement must be reduced to writing.

Question 38

If the pledged thing has been delivered to the pledgee or a third person acting on his behalf

Answer 38

the pledgee may hold onto that thing until the secured principal obligation has been extinguished.

Question 39

Who is entitled to the fruits of the thing pledged?

Answer 39

(1) The pledgee is entitled to receive the fruits of the thing pledged (e.g., rent owed under a lease of an immovable that the lessor has pledged) and to retain them, as well, as security. Further, he may apply these fruits toward the satisfaction of the secured principal obligation.

Question 40

Because pledge is an accessory right, the pledgee may enforce it only

Answer 40

to the extent that he may enforce the secured principal obligation.

Question 41

Can you used “self help” to enforce an accessory pledge?

Answer 41

Generally no; however, you may draw the contract to provide that the creditor can engage in self help.
1) But if the written contract of pledge so provides, the pledgee may, upon default of the principal obligor, dispose of the thing pledged on his own either at an auction open to the public or even in a private sale, provided he acts reasonably and accounts to the pledgor for the proceeds of the disposition.

Question 42

Where the pledge secures a principal obligation owed by someone other than the pledgor (in other words, the pledgor gave the pledge for the benefit of someone else), the pledgor may:

Answer 42

1) assert against the pledgee any defense that the obligor himself could assert (e.g., nullity of the secured principal obligation), except for lack of capacity or discharge in bankruptcy.
2) The pledgor may also assert any defense that would be available to a surety under similar circumstances, e.g., that the secured principal obligation has been modified in a material manner and without his consent.

Question 43

Preference (pledge)

Answer 43

Pledge gives the pledgee the right to be satisfied from the thing pledged and its fruits in preference to unsecured creditors of the pledgor and to other persons whose rights become effective against the pledgee after the pledge has become effective as to them.

Question 44

How would a special pledge, for example, where A loans B $10,000. B has not paid A back. A then goes to C for a loan. C wants collateral, so A provides to C his right to collect from B, become effective against third parties?

Answer 44

In general, for this kind of pledge to become effective against third persons, the “other person” obligor must either acquire “actual knowledge” of the pledge or get notice of it.
(2) There is an exception in the case of a lessor’s pledge of his rights under a lease of immovables and its rents. See the material below.

The pledgee may enforce performance of that other person’s obligation when it becomes due, may retain any performance received from that other person as (additional) security, and may apply that performance to the satisfaction of the secured principal obligation.

Question 45

The pledgee cannot take the enforcement actions against the obligor until that person becomes “bound to render performance to the pledgee,” and that does not happen until:

Answer 45

(1) the obligor must have been notified in writing of the pledge, and (2) he must have been directed by the new creditor (in this case C) to perform to him (otherwise B can just pay A).
(scenario: A loans B $10,000. B has not paid A back. A then goes to C for a loan. C wants collateral, so A provides to C his right to collect from B)

NOTE: Until the obligor has been notigied in writing of the pledge, A & B can modify the terms of their obligation as much as they want.

Question 46

Defenses to enforcement of a pledge

Answer 46

(a) The obligor of the pledged obligation may assert against the pledgee:
1) any defense arising out of the contract that gave rise to the pledged obligation, or
2) any other defense that arises against the pledgor before the obligor gets written notice of the pledge.
(b) As a general rule, if the pledgor and the obligor extinguish the obligation or modify it to the obligor’s ad-vantage, the obligor can assert the extinction or modification as a defense, even if the pledgee does not con-sent to the extinction or modification, provided that the extinction or modification is made in good faith. Under these circumstances, the pledgor and obligor are free to extinguish or modify the pledged obligation as they wish. Nevertheless, the pledgor and pledgee may agree that such a modification will constitute a default by the pledgor.

Question 47

Creation of Special Pledge #2: Lessor’s Rights in a Lease of an Immovable and Its Rents

Answer 47

Between the parties

(a) Writing requirements
1) Special contents
a) a precise statement of the nature and situation of the leased immovable (in other words, a description that would be sufficient for a mortgage);
b) a statement of either the amount secured or, if the pledge secures a revolving line of credit, the maximum amount that may be outstanding.
2) Documentation
a) a freestanding written act of pledge; or
b) a clause or other provision included in an act of mortgage of the leased immovable.
(b) the thing must be susceptible of pledge (future leases, mineral leases)

(Recordation) For this kind of pledge to become effective against third persons, the writing that evidences the pledge must be recorded in the mortgage records (as opposed to the conveyance records) of the parish in which the leased immovable is located.

Question 48

For this kind of pledge to become effective against third persons, the writing that evidences the pledge must be recorded in the mortgage records (as opposed to the conveyance records) of the parish in which the leased immovable is located.

HOWEVER, a lower-ranking pledgee must account to a higher-ranking pledgee to the extent that he collects more than one month’s worth of rent from the lessee, but only if:

Answer 48

(1) the second ranking leasee knows that his collecting any more money would violate some agreement that the pleagor reached with the higher-ranking pleadgee.
(2) it will in fact violate that agreement

Question 49

the pledgee’s sole means of enforcing the pledge is to

Answer 49

collect rents and receive other performances from the lessee under that lease.

Question 50

A mortgage is a

Answer 50

nonpossessory right created over property to secure the performance of an obligation. A mortgage gives neither title nor possession to the mortgagee.

Question 51

A mortgagee means

Answer 51

martgagor grants the mortgage, and the mortgage is the one who receives it. The mortgagor owns the property (or has an interest in it) the mortgage is the one extending credit (usually a bank).

Question 52

Indivisibility (mortgages)

Answer 52

expresses the notion that each portion of the mortgaged property secures every part of the mortgaged debt. Notably, a mortgage is an accessory to the obligation it secures. Thus, except as provided by law, the mortgagee may enforce it only to the extent that the mortgagee may enforce any obligation it secures.

Question 53

Property Susceptible to a Mortgage

Answer 53

a. A corporeal immovable with its component parts;
b. A usufruct of a corporeal immovable;
c. A servitude of right of use with the rights that the holder of the servitude may have in the buildings and other constructions on the land;
d. The lessee’s rights in a lease of an immovable with his rights in the buildings and other constructions on the immovable; and
e. Property made susceptible of conventional mortgage by special law.
(1) For example, one statute holds that mineral rights are susceptible of mortgage to the same extent as corporeal immovables.

Question 54

Types of Mortgages

Answer 54

A mortgage is conventional, legal, or judicial, and with respect to the manner in which it burdens property, it is general or special.

Question 55

A conventional mortgage is established by

Answer 55

contract

Question 56

a legal mortgage is established by

Answer 56

operation of law

Question 57

judicial mortgage is established by

Answer 57

law to secure a money judgment

Question 58

A general mortgage burdens

Answer 58

all present and future property of the mortgagor

Question 59

special mortgage burdens

Answer 59

only certain specified property of the mortgagor.

Question 60

A conventional mortgage may be created and established only

Answer 60

by written contract, which must:

(1) precisely state the nature and situation of each of the immovables or other property over which it is granted;
(2) state the amount of the obligation, or the maximum amount of the obligations that may be outstanding at any time and from time to time that the mortgage secures; and
(3) be signed by the mortgagor.
(a) The contract need not be signed by the mortgagee, whose consent is presumed and whose acceptance may be tacit.

Question 61

Multiple Indebtedness Mortgage (MIM):

Answer 61

directly creates a mortgage his property to secure a revolving line of credit.

Question 62

The mortgagee’s recourse for the satisfaction of the underlying obligation may be limited in whole or in part to

Answer 62

the property over which the mortgage is established.

Question 63

When does a mortgage become effective against third parties?

Answer 63

when the mortgage is recorded

Question 64

When does the mortgage become effective between the parties?

Answer 64

The moment the mortgage is executed.

Question 65

A recorded instrument is effective with respect to a third person if the name of the party

Answer 65

is not so indefinite, incomplete or erroneous as to be misleading, and the instrument as a whole reasonably alerts a person examining the records that the instrument may be that of the party.

Question 66

Recording must be done in the parish in which the immovable property that is being mortgaged is located. (generally and orleans parish)

Answer 66

generally: you file the mortgage with the clerk of court

if located in orleans parish: file with the recorder or mortgages

Wede case: the document filed must end up in the proper place in order to have third party effetiveness. IF the person to whom you deliver the mortgages misfiles it, you bear the consequences

Question 67

A person may reinscribe a recorded instrument creating a mortgage by recording a signed written notice of reinscription. The notice must state

Answer 67

the name of the mortgagor as it appears in the recorded instrument and registry number or other appropriate recordation information of the instrument, or of a prior notice of reinscription, and must declare that the instrument is reinscribed.

Question 68

General Rule: The effect of recordation of an instrument creating a mortgage ceases

Answer 68

ten years after the date of the instrument.

Question 69

If an instrument creating a mortgage describes the maturity of any obligation secured by the mortgage, and if any part of the described obligation matures nine years or more after the date of the instrument, the effect of recordation ceases

Answer 69

six years after the latest maturity date described in the instrument.

Question 70

A failure to reinscribe affects

Answer 70

only rights as to third parties; the obligation is still effective between the parties themselves (so long as it is not prescribed). However, upon receipt of a written signed application from one of the parties, the recorder is required to cancel the recordation of the mortgage.

Question 71

When a principal obligation secured by an accessory is itself transferred from one obligee to another, then

Answer 71

the accessory goes with it.

Question 72

If the entirety of the principal debt was transferred, then

Answer 72

the entirety of the mortgage is transferred

if only a portion transferred, then whatever proportion of the debt each of them ends up with is the extent to which the person will be able to enforce the mortgage (share pro rata)

Question 73

(mortgage) Third possessor:

Answer 73

Someone who takes mortgaged property but is not personally liable on the obligations secured by the mortgage.

Question 74

What does a third possessor owe to the original mortgagee?

Answer 74

neglect or waste – if you allow the value of the property to decline, then you could owe mortgagee indemnification for the lower value.

Similarly, the third possessor has the right to recover the costs of the improvements made if property is foreclosed on, but only to the extent that the improvements increased the property value for the mortgagee.

Question 75

A legal mortgage is a

Answer 75

general mortgage, which is established over property that the obligor owns when the mortgage is created and over future property of the obligor when he acquires it.

Question 76

a judicial mortgage is created by

Answer 76

filing the judgment with the recorder of mortgages.

The effect of recordation of a judgment creating a judicial mortgage ceases ten years after the date of the judgment.

Question 77

collateral mortgages become effective when

Answer 77

the mortgagee makes his first withdrawl

Question 78

IRS (ranking mortgages)

Answer 78

IRS lien wins with respect to future advances that are made after 45 days after the notice of tax lien is filed OR that is made by the mortgagee creditor with knowledge that the tax lien has been filed.

Question 79

Deficiency Judgment Act

Answer 79

Protects mortgager against things like the Great Depression (your house just isn’t worth nearly enough to cover the money owed, even though it used to be). How? it denies deficiency judgment to the creditor, unless s/he had the collateral properly appraised before auction, and the creditor must credit the debtor with at least 50% of the appraised value of the property.

Question 80

A privilege is

Answer 80

a right, which the nature of a debt gives to a creditor, and which entitles the creditor to be preferred before other creditors, even those who have mortgages. Privileges arise by operation of law, and their ranking depends on their nature, not time of creation. They may exist on movables, immovables, or both, and they are valid against third persons from the date of recording as provided by law.

Question 81

A lien is

Answer 81

a type of privilege governed by the Private Works Act. The Act applies when a private entity (i.e., property owner) hires a general contractor to work on an immovable.

Question 82

(General Privilege) Funeral charges

Answer 82

the burden falls on the property of deceased person and is capped at $500

Question 83

(General Privilege) Law charges

Answer 83

favors the victor in litigation. provides to him a privilege on all of the property of the lessor but secures only law charges (court fees, etc., but not attys fees

Question 84

(General Privilege) medical professionals

Answer 84

(who attend to a patient during his or her last illness) person gets sick, and she dies. provides security to med. team for services rendered in the last year of the dead person’s life. Falls on dead person’s estate, no dollar amount cap.

Question 85

(General Privilege) special classes of workers

Answer 85

clerks, secretaries, and domestic servants; security over estate for which they worked to secure the last year’s wages

Question 86

(General Privilege) survivors

Answer 86

surviving spouse/minor children: who are tat the time of loved one’s death find themselves in necessitous circumstances, and who between them don’t own more than $1000 – can get $ from dead person’s estate, capped at $1000

Question 87

(Special Privilege) Depositaries

Answer 87

have right to the expenses they incurred by being a depositary

Question 88

(Special Privilege) Carriers, transporters

Answer 88

possessory privilege – can hold thing transported to secure payment; 180 days right of persuit

Question 89

(Special Privilege) Attorneys

Answer 89

Atty can recover $ from a judgment (cannot settle, limited to Plaintiff’s attorneys); may include in contract that they get %, even if settle

Question 90

(Special Privilege) Medical providers

Answer 90

attend to medical emergency that arose b/c of tort – have right to part of tort recovery up to the amount they incurred as a result of rendering emergency care

Question 91

(Special Privilege) crops

Answer 91

privilege over year’s cops for wages

Question 92

(Special Privilege) repairmen

Answer 92

A workman or artisan has a special privilege for the price of his labor on the movable which he has repaired or made, while the thing continues in his possession.

Question 93

(Special Privilege) lessor

Answer 93

To secure the payment of rent and other obligations arising from the lease of an immovable, the lessor has a privilege on the lessee’s movables that are found in or upon the leased property.

(1) The lessor’s privilege extends to the movables of any sublessee, but only to the extent that the sublessee is indebted to his sublessor at the time the lessor exercises his right.
(2) The lessor may lawfully seize a movable that belongs to a third person if it is located in or upon the leased property, unless the lessor knows that the movable is not the property of the lessee.
(3) The lessor may seize the movables on which he has a privilege while they are in or upon the leased property, and for 15 days afterward if they remain the property of the lessee and can be identified.

Question 94

(Special Privilege) vendor

Answer 94

(1) Immovables: The vendor of an immovable only preserves his privilege on the object when he has caused to be recorded at the office for recording mortgages, his act of sale and whatever may be the amount due him on the sale.
(2) Movables: He who has sold to another any movable property, which is not paid for, has a preference on the price of his property, over the other creditors of the purchaser, whether the sale was made on a credit or without, if the property still remains in the possession of the purchaser.

Question 95

Ranking Privileges (non-farm product movables)

Answer 95

possessory privilege beats art. 9 security (regardless of time); lawyers privilege beats art 9; repairmen beat unperfected art 9

(a) The lessor’s privilege beats the vendor’s privilege.
(b) The vendor’s privilege beats the repairman’s privilege.
(c) Special privileges have priority over general privileges.
1) However, the funeral privilege beats the lessor’s privilege.

Question 96

Ranking Privileges (farm product movables)

Answer 96

(1) agricultural laborers, (2) lessor of farm (if timely filed financing statement), (3) other perfected ag. liens, (4) lessor (if did not file financing statement), (5) art 9 or lender, unperfected parties.

Question 97

Ranking Privileges (relative to mortgages)

Answer 97

(a) Mortgages lose whenever the Article 9 security interest was perfected.
(b) Mortgages lose to all privileges.

Question 98

Ranking Privileges (immovables)

Answer 98

vendors privilege if recorded within 7-10 days of sale, then vendor prevails over prior perfected mortgage–didn’t file, then get rank based on time recorded

privilege v. mortgages = mortgages rank last, but note that if vendor files late, then its at the back of the line if filed after mortgage filed.

Question 99

Private Works Act

Answer 99

a lien gives rise to a direct cause of action against the owner and the contractor, and a privilege on the immovable securing the claim or claims against the owner for work performed and materials supplied.

A privilege on the immovable securing the claim or claims against the owner for work performed and materials supplied is effective as to third persons when:

a. notice of the contract is filed; or
b. the work is begun by placing materials at the site or conducting other work at the site, the effect of which is visible from a simple inspection and reasonably indicates that the work has begun.

Question 100

Preserving rights under the Private Works Act

Answer 100

File a special kind of document called a statement of claim. Must: be in writing, must ID immovable, be signed by the claimant, and use a “legal description” of the lot/sublot, thing being built, work done (in detail), amt. claimed. Must also identify who hired you for the work done.

Question 101

Timing for PWA

Answer 101

(1) As a general rule, the time period in question is 60 days.
(2) 30 days if the claiment is not in privity with the owner, the GP properly filed a notice contract, and a notice of termination has been filed.
(3) 70 days if material men who work on residential construction projects.

Question 102

PWA becomes effective when

Answer 102

when notice of contract was filed, or the moment work begins.

Question 103

Ranking under PWA

Answer 103

Properly recorded and enforced privileges of laborers beat everybody else under the PWA. Thereafter:

(1) prior perfected mortgagees, vendors privilege, prior perfected UCC art 9 fixture
(2) subcontractors, material men, lessors of movables,
(3) general contractor and those who also directly contracted with the owner.
(4) all other mortgages and privileges—mortgages who did not perfect their mortgages prior to the moment at which the priv. became effective