Security Interests in Personal Property

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Chapter 22

• Security Interests in Personal Property

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What is a secured transaction?

• A secured transaction is a
• Credit Transaction
• With collateral pledged as security
• Allows the creditor to use the collateral to
  satisfy the debt in the event of default

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Security Interest

• The security interest is the legal right of the
  creditor to use the collateral for debt
  satisfaction
• Security interests can exist only if the debtor
  so agrees
• Security interest is a separate agreement from
  the debt.though often combined into one document
• Recording system to give public notice

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Security Interests Real Property

• Called a mortgage
• The mortgage is not the loan, though often
  called the mortgage in everyday language
• Borrower/homeowner is the mortgagor
• Gives mortgage (right to repo) to lender
• Lender is the mortgagee
• Recording mortgages is part of general real
  property system

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Who is the lender?

• If seller finances the transaction
• Seller becomes the lender and extends credit
• A two party transaction
• If 3rd Party (such as bank) finances
• Seller and lender are different persons
• A three party transaction

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Secured TransactionsIssues

• Is the creditor able to go after the collateral
  (has a security interest attached?)(does it
  exist?)
• If more than one creditor, which has priority?
  (What is the order of perfection?)(Who perfected
  when?)

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Basic Issues

• Attachment Have the 3 requirements been met for
  attachment.thus entitling the creditor to get
  the collateral
• Perfection In what order (by time) did the
  creditors meet requirements to secure their
  place in line

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Attachment3 Requirements

• Written agreement
• Describe collateral
• Signed by debtor
• Value Given to Debtor
• Funds advanced or goods received
• Debtor has rights
• Usually means ownership

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Goods 4 Classifications

• Consumer goods
• Equipment (this is the default classif.)
• Farm Products
• Inventory
• Fixtures (no longer considered a good)
• Key How does this debtor use them?
• Same item can have different classif.

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Perfection

• Puts world on notice of your security interest
• Sets your priority
• Cannot occur before attachment
• Usually done by filing a financing statement

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Financing Statements

• Describe the collateral parties
• Are good for up to 5 years
• Can be renewed in last 6 months
• Priority is Date of filing or perfection,
  whichever occurs first.

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Security interest scope

• Beyond the specific collateral, can cover (if the
  security interest so states)
• Proceeds
• After-acquired property
• Future advances
• Floating Lienmight cover all inventory as it
  changes from day to day
• New inventory covered as it arrives, old ceases
  to be covered as it is sold.

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PMSIConsumer Goods

• Purchase Money Security Interest
• Creditor extends the credit to buy the item
• Perfection is automatic upon attachment
• Still must meet 3 reqs. For attachment, but once
  you do, perfection is automatic

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Priority Rules

• Secured beats unsecured
• 2 unperfected attachment date
• Perfected beats unperfected
• 2 perfected earlier to file or perfect

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Special Priority Rules

• Buyer in ordinary course Takes free of any
  security interest in sellers inventory
• PMSI Equipment New lender has 20 day grace
  period after delivery to perfect.
• PMSI Inventory New lender gets priority over
  prior for new delivery if notifies old lender
  prior to delivery.

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Remedies

• Can repossess collateral (peacefully!)
• Sell and then must use proceeds for
• Repo and resale expenses
• Payment of the debt
• Payment of junior lienholders
• Excess to debtor
• Deficiency judgment if sale does not cover
  amounts owed
• Good faith required in collateral sale
• Usually debtor has a redemption right