Attachment of a Security Interest - Explained
Using the Security Agreement to Attach the Security Interest
Written by Jason Gordon
Updated at April 6th, 2023
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How does one establish a security interest in personal property?
A security interest in property begins when personal property is identified as collateral for a loan. This is known as attachment or attaching the property. Attachment takes place when the following conditions are met:
Security Agreement - The secured party and the party granting a security interest (debtor) must enter into a written security agreement. The security agreement must be signed by the debtor and contain a reasonable description of the collateral.
Value Given - The secured party must give or transfer value to the debtor. This generally means that the loaned funds are transferred to the borrower.
Ownership in Collateral - The debtor must acquire ownership of the collateral. The debtor does not necessarily have to own the collateral at the time of entering into the security agreement. In some cases the debtor will use the value received from the secured party to purchase the collateral. Also, the security agreement may include an after-acquired collateral clause. This means that property acquired by the debtor after the loan is made can serve as collateral for the original loan.
Example: Jack loans Katy money to buy inventory to sell. Every new set of inventory replacing the sold inventory can be made subject to the security agreement.
Next Article: Perfection of a Security Interest Back to: SECURED TRANSACTIONS
Discussion Question
Why do you think the law requires the above-referenced elements before a security interest attaches? Can you think of situations where any of the above elements are absent, but fairness would indicate that a security interest should attach? How do you feel about the ability of the secured party to acquire an interest in collateral that is later acquired by the debtor? Does it affect your opinion if the after-acquired property clause is very broad and includes all assets of the debtor?
Practice Question
ABC Inc., enters into an agreement with Sasha to purchase equipment that he sells. Sasha agrees to finance the purchase but wants to establish a security interest in the equipment to make certain that ABC pays the full purchase price. What elements must be present for Sasha to establish as security interest?
Related Topics
- Secured Transactions Law (Intro)
- What is a Security Interest?
- Collateral
- Pledge as Collateral
- Collateralize
- Cross Collateralization
- After-Acquired Collateral
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Unsecured Loan Definition
- Unencumbered Asset
- What is a Secured Creditor?
- Unsecured Creditor
- What are the benefits of security interests for creditors?
- Limited Recourse Debt
-
Uniform Commercial Code - Article 9
- What are the common types of security interest in real property (land)?
- What is a mortgage?
- How does a security interest protect the mortgage holder?
- Lis Pendens
- Deficiency Judgment
- What is a Deed of Trust or Security Deed?
- What is a Land Sale Contract?
- What is a security interest in personal property?
- How does one establish a security interest in personal property?
- What is Perfection of a security interest?
- What are the methods of perfecting a security interest in personal property?
- UCC-1 Statement
- How does one establish a security interest in real property (land)?
- Register of Deeds
- What is Automatic Perfection of a security interest?
- What is a Purchase Money Security Interest (PMSI) in consumer goods?
- What is a Purchase Money Grace Period for a PMSI in non-consumer goods?
- How does one continue perfection of a PMSI in non-consumer goods?
- What is Temporary Automatic Perfection in Proceeds from the sale of goods?
- How is a security interest created in Assignment of Accounts Receivable and Contract Rights?
- How does one perfect a security interest by Possession of the collateral?
- How does on perfect a security interest by Control of collateral?
- How does one perfect a security interest by Filing a Financing Statement?
- What authorization is required to file a financing statement?
- Where is the appropriate office to file a financing statement?
- Defeasance
- Continuation Statement
- What is Priority of a security interest?
- What role does perfection play in establishing the Priority of a secured party?
- What are the common conflicts arising as to priority of a security interest?
- What is the priority of parties secured by common law and statutory liens?
- Lien - Definition
- Blanket Lien Definition
- Unperfected Lien
- Possessory Lien
- Non-Possessory Lien
- Tax Lien
- Mechanics Lien Definition
- Construction Lien
- Cloud on Title
- What is the priority of a buyer of collateral that is subject to a security interest?
- What is required to be a buyer in the ordinary course of business?
- How does 9-320(b) protect consumers who purchase goods from other consumers?
- What is the Shelter Principle?
- What are the general Priority Rules for Conflicting security interests?
- Subordination Agreement
- Who has Priority in Proceeds from the sale of collateral?
- What is a secured party's priority in future advances to a debtor?
- What is the priority of a PMSI in goods (other than inventory and livestock)?
- What is the priority of a PMSI in inventory?
- What is the priority of conflicting PMSIs?
- What is the priority of security interests in fixtures?
- What is the scope of fixture priority rules?
