Purchase Money Grace Period for Secured Parties
20-Day Period to Permanently Perfect a Purchase Money Security Interest
Written by Jason Gordon
Updated at July 6th, 2021
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Table of Contents
What is a purchase-money grace period for a purchase-money security interest in non-consumer goods?Discussion QuestionPractice QuestionAcademic ResearchWhat is a purchase-money grace period for a purchase-money security interest in non-consumer goods?
Sellers of non-consumer goods receive temporary automatic perfection of an attached PMSI in the collateral sold. As the name applies, the security interest is temporary in nature. The seller has a 20-day grace period for filing a financing statement following the attachment of the purchase money security interest in the collateral. If the financing statement is filed during this 20-day period, the date of permanent perfection dates back to the date the security interest attached to the collateral. If the secured party fails to file a financing statement during the 20-day grace period, the temporary automatic perfection is lost.
Note: In that event the automatic PMSI is lost, the first secured party to perfect her security interest has priority in the collateral.
Next Article: Continued Perfection of a PMSI in Non-Consumer Goods Back to: SECURED TRANSACTIONS
Discussion Question
Why do you think it is important to allow a grace period for a secured party to permanently perfect her security interest in non-consumer goods? Does this create a risk to any subsequent purchaser of the goods from the original purchaser? Should such risk be balanced against the interests of the secured party? Why or why not?
Practice Question
ABC Corp sells 123 Corp a piece of equipment. ABC finances the purchase over 12 months and attaches a purchase money security interest. What must ABC do to perfect its security interest?