Perfection

Question 1

What is perfection?

Answer 1

The process that stakes the secured party’s claim, so that the secured party might have priority over a later party

Question 2

What are the six methods of perfection?

Answer 2

• Filing
• Possession
• Control
• Alternative perfection systems
• Perfection under a state’s certificate of title law
• Automatic perfection

Mnemonic: Famous People Can’t Avoid Attention

Question 3

What is perfection by filing?

Answer 3

Filing a financing statement in the central filing office of the appropriate state

Question 4

What types of collateral can be perfected by filing?

Answer 4

All types except deposit accounts, money, letters of credit, and collateral subject to other perfection methods (e.g. state certificate of title laws)

Question 5

What is the purpose of a financing statement?

Answer 5

Puts others on notice that there may be a security interest

Question 6

Where is a financing statement filed? (general)

Answer 6

The central filing office, often the secretary of state’s office in the state where the debtor is located

Question 7

For determining where to file a financing statement, where is a corporation located?

Answer 7

Its state of incorporation

Question 8

For determining where to file a financing statement, where is a business that’s not a registered organization located?

Answer 8

The state in which it operates its business

If multiple states, then the state where the CEO is located

Question 9

For determining where to file a financing statement, where is an individual located?

Answer 9

The state of their principal residence

Question 10

For collateral related to real property, where is the financing statement filed?

Answer 10

The county where the property is located

Question 11

What information is required in a financing statement for perfection?

Answer 11

• Name of the debtor
• Name of the secured party
• Description of the collateral

Question 12

What information is required in a financing statement but not essential for perfection?

Answer 12

• Address of the debtor
• Address of the secured party
• Whether the debtor is an individual or an organization

Question 13

What happens if a financing statement is missing required but nonessential information?

Answer 13

A filing office will refuse to accept the statement

However, if a filing office accepts the statement, it is effective to perfect a security interest

Question 14

What additional information is required in a financing statement for collateral related to real property?

Answer 14

• That the security agreement covers this type of collateral
• That it is to be filed in the local real property records
• Description of the related real property
• Name of the record owner of the real property, if the debtor does not have an interest in the real property

Question 15

Does recording the mortgage in local real property records satisfy the financing statement requirements for real-property-related collateral?

Answer 15

Yes, if it contains the required information.

Note: It does not need to include that it will be filed in the local real property records

Question 16

A debtor must _________ a financing statement in an authenticated record.

Answer 16

authorize

Question 17

Does a debtor have to sign a financing statement?

Answer 17

No

Question 18

If a debtor authenticates a security agreement, what does that authorize?

Answer 18

The secured party to file a financing statement

Question 19

What can failure to obtain authorization before filing a financing statement result in?

Answer 19

The secured party being liable for actual and statutory damages

Question 20

A financing statement must contain the debtor’s _____ name.

Answer 20

legal

Question 21

If the debtor is a registered organization, what name must be used on the financing statement?

Answer 21

The name on the articles of incorporation or last public organic record filed with the state

Note: No trade names (i.e. no d/b/a)

Question 22

If a debtor is an individual, what name must be used on the financing statement?

Answer 22

Majority rule: The name on their non-expired driver’s license or state ID (or their legal name if no ID)

Minority rule: The name on their driver’s license or state ID is a safe harbor, but other legal names may be sufficient

Question 23

How does the description of collateral for a financing statement compare to that in a security agreement?

Answer 23

The description in a financing statement can be super generic

Question 24

Does a financing statement need to mention proceeds?

Answer 24

No

Question 25

Does a financing statement need to mention after-acquired property or future advances?

Answer 25

No

Question 26

What must happen first: attachment or perfection?

Answer 26

Attachment

Question 27

If the collateral is described in a security agreement but NOT the financing statement, has the security interest attached? Has it perfected?

Answer 27

Attached, but not perfected

Question 28

If the collateral is NOT described in a security agreement but is described in the financing statement, has the security interest attached? Has it perfected?

Answer 28

Not attached or perfected

Question 29

If the collateral is described in both the security agreement and financing statement, has the security interest attached? Has it perfected?

Answer 29

Yes, attached and perfected

Question 30

What is the general rule regarding minor errors in a financing statement?

Answer 30

They do not affect perfection unless they make the financing statement seriously misleading

Question 31

For financing statements, are errors in the debtor's name seriously misleading?

Answer 31

Almost always

Question 32

For financing statements, when is an error in a debtor's name not seriously misleading?

Answer 32

If the search for the correct name of the debtor would uncover the financing statement with the error

Question 33

If a financing statement lacks the required information, what should the filing office do?

Answer 33

Refuse the statement

Question 34

If a creditor fails to tender the fee or submits a financing statement in an improper manner, what should the filing office do?

Answer 34

Refuse the statement

Question 35

If a filing office refuses a financing statement and was not justified in doing so, what happens?

Answer 35

The financing statement is treated as having been filed Exception: If a purchaser or secured party reasonably relied on the absence of the record in the files, then it is ineffective

Question 36

What happens if a filing office indexes the financing statement incorrectly?

Answer 36

No effect on perfection

Question 37

How many years after the date of filing do financing statements lapse?

Answer 37

5 years, unless continued

Question 38

How do you continue a financing statement?

Answer 38

By filing a continuation statement within 6 months before the financing statement lapses

Question 39

What happens to the secured party if a financing statement lapses?

Answer 39

The secured party loses perfection

Question 40

What might happen if a secured party files a new financing statement to re-perfect?

Answer 40

It might lose its place in a priority contest

Question 41

When an obligation is paid back, what voids the financing statement?

Answer 41

A termination statement

Question 42

What kinds of collateral can be perfected by possession?

Answer 42

* Money * Goods * Instruments * Negotiable documents * Tangible chattel paper

Question 43

What is the only way to perfect a security interest in money?

Answer 43

Possession

Question 44

For perfection by possession, when is the security interest perfected?

Answer 44

As soon as the secured party has possession

Question 45

For perfection by possession, how long does the security interest remain perfected?

Answer 45

As long as the secured party retains possession

Question 46

For perfection by possession, what happens when the secured party no longer has possession?

Answer 46

Gives the collateral back to the debtor

Question 47

What kinds of collateral can by perfected by control?

Answer 47

* Deposit accounts * Investment property * Electronic documents * Electronic chattel paper * Letter of credit rights

Question 48

What is the only way to perfect a security interest in deposit accounts and letter of credit rights?

Answer 48

Control

Question 49

For perfection, how can control be obtained over a deposit account?

Answer 49

* The secured party is the bank that has the deposit account * Deposit account control agreement: the secured party, the bank, and the debtor agree in an authenticated record that the secured party (lender) has control * The secured party becomes the bank's customer for the deposit account

Question 50

When another statute (not Article 9) governs how a security interest is perfected, which one must be followed?

Answer 50

The other statute

Question 51

What does a certificate of title statute apply to?

Answer 51

Cars, motorcycles, and other vehicles that have title

Question 52

Under a certificate of title statute, how does perfection work?

Answer 52

By noting a security interest on the certificate of title

Question 53

Under a certificate of title statute, when can a car be perfected by other means?

Answer 53

When the car is inventory

Question 54

What kind of PMSI automatically perfects after attachment?

Answer 54

A PMSI in consumer goods NOT inventory, equipment, or farm products

Question 55

What are some examples of collateral that automatically perfect?

Answer 55

* PMSI in consumer goods * Casual or isolated assignments of accounts that don't transfer a significant part of the outstanding accounts receivable * Sales of payment intangibles or promissory notes

Question 56

If a debtor's name change causes a filed financing statement to become seriously misleading, what does the secured party need to do?

Answer 56

Within 4 months, discover the change and file an amendment to the financing statement

Question 57

If a secured party fails to amend a financing statement after a debtor's name change, what happens to collateral acquired before the name change or before the 4-month window expires?

Answer 57

Remains perfected by the original financing statement

Question 58

If a secured party fails to amend a financing statement after a debtor's name change, what happens to collateral acquired after the 4-month window expires?

Answer 58

Not covered by the financing statement

Question 59

If a debtor moves out of the state, what happens to a perfected security interest?

Answer 59

Remains perfected for 4 months after the debtor moves, unless the financing statement lapses earlier

Question 60

If a debtor moves out of the state, what does the secured party need to do for continuous perfection?

Answer 60

Refile in the new state within 4 months

Question 61

If a debtor moves out of state, what happens to collateral purchased during the 4-month window?

Answer 61

Covered by the original financing statement

Question 62

If the collateral is moved out of state, when is refiling necessary?

Answer 62

When the collateral is transferred to a new debtor Note: no refiling is necessary if the debtor still owns the collateral

Question 63

If collateral is moved out of state and transferred to a new debtor who lives out of state, what must the secured party do?

Answer 63

File a financing statement listing the new debtor within one year

Question 64

If collateral is moved out of state and transferred to a new debtor, what happens if the secured party fails to file a financing statement within a year?

Answer 64

* The security interest ceases to be perfected in the collateral * Perfection is lost prospectively * Against another secured party or purchaser for value, the security interest is deemed never to have been perfected

Question 65

If a security interest is perfected by possession, when might temporary automatic perfection apply?

Answer 65

* The collateral is an instrument, negotiable document, certificated security, or goods stored with a bailee * The secured party gives the collateral back to the debtor for limited purposes: * To sell it * To exchange it * To enforce the debtor's rights in the collateral

Question 66

How long does temporary automatic perfection apply?

Answer 66

20 days

Question 67

What must a secured party do to remain continuously perfected after temporary automatic perfection?

Answer 67

File a financing statement or repossess the collateral within 20 days

Question 68

What is the general rule for perfection of proceeds?

Answer 68

Automatically perfected for 20 days, and may be perfected after in some circumstances

Question 69

For a perfected security interest in proceeds to have priority dating from the time of perfection in the original collateral, what must be true of the secured party?

Answer 69

Has remained continuously perfected

Question 70

After the initial 20 days of perfection for proceeds, what are the circumstances in which perfection will NOT lapse?

Answer 70

* The original financing statement is broad enough to encompass proceeds * The secured party amends the financing statement * Cash proceeds rule * Same office rule

Question 71

For perfection of proceeds, what is the cash proceeds rule?

Answer 71

If collateral is sold, licensed, leased, or otherwise disposed of and generates cash proceeds, perfection continues indefinitely in cash proceeds so long as they are identifiable

Question 72

For perfection of proceeds, what is the same office rule?

Answer 72

A security interest in proceeds will be perfected when: * The financing statement covers the original collateral; * The proceeds are collateral in which the security interest may be perfected by filing in the same office as the original financing statement; and * The proceeds are not acquired with cash proceeds