ST: Perfection of Security Interests

Question 1

What is the purpose of “perfecting” the attachment?

Answer 1

To put the world on notice that the secured party has an interest in the collateral. It protects the secured party from competing creditors.

Question 2

How is perfection attained?

Answer 2

1. By the secured party taking possession of the collateral until the debt is repaid.
2. Purchase Money Security Interests in consumer goods are automatically perfected.
3. Filing notice of the security interest in the public records.

Question 3

What is a purchase money security interest?

Answer 3

When the secured party loans the money the debtor needs to purchase the collateral.

Question 4

B buys a TV from Best Buy on credit from Best Buy - what kind of security interest is that, and how can Best Buy perfect it?

Answer 4

It is a purchase money security interest in a consumer good, and it is automatically perfected.

Question 5

What document must the secured party file if she does not take possession of the goods and is not a PMSI?

Answer 5

A financing statement that contains sufficient information to allow interested parties to make follow up inquiries. An extremely vague, general statement is usually okay.

Question 6

Must the financing statement by physically filed?

Answer 6

No - electronic filing is encouraged.

Question 7

What information must the financing statement contain?

Answer 7

1. debtor’s name and address,
2. creditor’s name and address,
3. and a description of the collateral (can be super vague)

Question 8

Where is the financial statement filed?

Answer 8

Centrally with the state Secretary of State in the state where the debtor is located.
(individual = principal residence)
(business organization = incorporating state)

Question 9

What is the exception to the rule that the financial statement should be filed with the state secretary of state where the debtor is located?

Answer 9

When the collateral is timber, minerals, or fixtures - and then it’s the situs of Blackacre.