Secured Transactions

Question 1

What is a Purchase Money Security Interest (PMSI)?

Answer 1

Interest in personal property or fixtures that secures payment of an obligation that is:
Taken by seller to secure price OR
Taken by person who loans money to enable debtor to acquire collateral

Question 2

What parties do creditors need protection from?

Answer 2

DOTS
Debtor
Other creditor claiming interest in same collateral
Trustee in bankruptcy
Subsequent purchaser from debtor without knowledge of perfection

D - attachment only
OTS - attachment and perfection

Question 3

What is needed for attachment to occur?

Answer 3

All Three - PIG
Property owned by debtor
Interest is created - either signed security agreement or take possession
Give value to debtor

Question 4

What is needed for perfection to occur?

Answer 4

Any One - FAT
File a financing statement
Automatic perfection
Take possession

Question 5

What are rules for automatic perfection?

Answer 5

PMSI in consumer goods is automatically perfected
Loophole if debtor sells to another
Can close loophole by filing financing statement within 20 days of attachment
Applies to equipment but not inventory

Question 6

What is the Inventory Rule?

Answer 6

If acquiring goods in ordinary course of business, buyer’s claim is superior to all other claims

Question 7

What is the priority among creditors?

Answer 7

1) Inventory rule
2) Holder of statutory lien
3) PMSI when attached and perfected simultaneously
4) Other perfections in order of filing
5) Other perfections in order of perfection
6) Order of attachment if no one perfected

Question 8

What are creditor responsibilities?

Answer 8

Use reasonable care to preserve collateral
Confirm unpaid amount
Send debtor termination statement releasing collateral