R7 Secured Transactions

Question 1

What are the 3 requirements for attachment?

Answer 1

1. Partie smust have an agreement creating the security interest evidence by either (a) authenticated record or (b) creditor taking possession or control of collateral
2. Value must be given by secured party in exchange for the security interest
3. Debtor must have an interest in the collateral (i.e. ownership, possession)

Question 2

What is the difference between attachment and perfection?

Answer 2

Attachment establishes the secured party’s rights to the collateral.

Perfection is obtaining the maximum priority in the collateral over MOST other 3rd parties.

Question 3

How do you perfect?

5 methods

Answer 3

Perfection cannot be completed before attachment has been finalized.

1. Filing
2. Taking possesson of collateral
3. Control
4. Automatic perfection
5. Temporary perfection

Question 4

What is perfection by filing?

Answer 4

1. Filing financial statements
2. Debtor authorizes the filing

Period filing is effective = 5 years and renewable

Question 5

What is perfection by taking possession?

Answer 5

Taking possession of the collateral. Think of a pawn shop.

Question 6

What is perfection by taking control?

Answer 6

Security interest in investment property may be perfected by taking control.

Taking control means the secured party has taken whatever steps are necessary to be able to have the investment propery sold without further action from the owner.

Question 7

What is automatic perfection?

Answer 7

Two types of automatic perfection:

Purchase Money Security Interest (PMSI) and small scale assignment of accounts.

PMSI is only for consumer goods (not inventoy or equipment).

Question 8

What is temporary perfection?

Answer 8

Two types:

1. 20 day period = continuously perfected for 20 days from debtors receipt of the proceeds.
2. When debtor moves to another state: perfection valid for 4 months after entering second state.

Question 9

What is the ranking of priority from highest to lowest for perfected parties?

Answer 9

1. Buyer in ordinary course of business; holders in due course; holders of possessory liens
2. Holders of properly perfected PMSI
3. Non-PMSI holder of perfected security interest in, or a judicial lien that attached to, the collateral
4. Hoder of unperfected security interest (attached only)
5. Debtor

Question 10

What is replevin?

Answer 10

Judicial action seeking the transfer of personal property.