attachment
= creating a valid security interest in collateral
- most commonly with signed security agreement and is valid if;
1. describes collateral
2. party offering collateral must have rights in in
3. party gaining the security interest must give value in exchange for the security interest
two ways for a security interest to attach to collateral w/o security agreement
- possession
2. control
perfection
most security interests are perfected when the holder of the security interest files a financing statement at a central filing location in the state where the debtor is located
-a perfected security interest will be superior to most interest others might have in collateral
financing statement
once a financing statement is properly filed, the security interest is perfect and the world is considered to have notice of the interest
perfection for motor vehicles
can be perfected only by notation on the security interest on the vehicle’s title
perfection for things attached to lad (timber or fixtures)
usually must be perfected with filing statements that describe the land and are filed in the county where the land is located
perfection for most types of collateral
security interest in most types of collateral can be perfected by possession by the party holding the security interest
perfection in a few types of collateral (ex; business deposit accounts)
can be perfected by control
perfection for purchase money security interest
in consumer goods are automatically perfected
priority
- perfected security interests have priority over unperfected interests.
- between two perfected security interests, the first to have been filed or perfected has priority
- PMSIs have priority over non PMSIs
- perfected security interest have priority over creditors in bankruptcy
- a buyer in the ordinary course of business usually takes goods free of any security interest
categories of collateral
- consumer goods = goods used or bought for personal or household purposes
- inventory = goods held for sale or lease and supplies/material quickly used up in business
- equipment = any physical goods other than consumer good, inventory, or farm products
- accounts = a right to payment (accounts receivable)
- deposit accounts = bank account
purchase money security interests PMSI
- special type of security interest that gets higher priority
- arises when the lender loans money to the borrower specifically for the buyer to purchase certain goods, and the lender takes a security interest in those goods.
rights on default
- generally if a borrower defaults on a loan that is covered by a security interest, the secured party has a right to sell the collateral and use the funds from the sale to pay itself the amount remaining on the loan.
- secured parties can simply take the collateral if they can do so peacefully.
- Or can file an action in court to force a public sale of the collateral
