Perfecting a Security Interest in Personal Property - Explained
How to Perfect a Security Interst in Personal Property
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What methods exist for perfecting a security interest in personal property?
Establishing or making ones security interest effective as against third parties is known as perfection of the security interest. Perfection takes place when the security interest has attached and the creditor has taken all proper steps required by Article 9 for perfection. Generally, Article 9 allows a secured party to perfect her security interest through the following methods:
Financing Statement - The most common way of perfecting a security interest under Article 9 is to file a financing statement in the appropriate public office. State law establishes the system and location for filing a public financing statement. Most states allow for filing through the secretary of states office, while other states allow for filing at a public office (such as the courthouse) in the area where the collateral is located.
Note: Perfection by filing is appropriate for any collateral, except negotiable instruments.
Possession or Control - In some cases, the secured party may perfect a security interest by establishing possession of or control over the collateral securing the obligation. The theory behind this method of perfection is that a third party would not reasonably extend credit and take a security interest in collateral that the debtor supposedly owns but does not possess and cannot otherwise demonstrate ownership.
Note: Control may include holding a certificate of title of physical possession of the collateral.
Automatic Perfection - Some security interests are automatically perfected, either permanently or temporarily, upon attachment of the security interest to the collateral.
Example: A Purchase Money Security Interest (PMSI) is a transaction in which a lender provides funds or financing to purchase the collateral securing the loan. If the collateral is a consumer good, the lender is automatically perfected. If the collateral is a non-consumer (business) good, the security party is automatically perfected for a temporary amount of time.
Each of these methods of perfecting a security interest is discussed separately.
Next Article: Establishing a Security Interest in Real Property (Land)
Back to: SECURED TRANSACTIONS
Why do you think the law allows secured creditors to perfect their security interests via multiple methods? What are the justifications for the above methods? What is the common characteristic in each of the methods of perfecting a security interest?
Tom sells a piece of equipment to May to use in her business. He provides financing that allows May to pay for the equipment over the next 24 months. Tom and May undertook the steps necessary to attach a security interest in the equipment. What methods might Tom use to perfect his security interest?
- Secured Transactions Law (Intro)
- What is a Security Interest?
- Pledge as Collateral
- Cross Collateralization
- After-Acquired Collateral
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?
- 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?