Chapter 29: Secured Transactions

Attachment

(1) In the context of secured transactions, the process by which a security interest in the property of another becomes enforceable. (2) In the context of judicial liens, a court-ordered seizure and taking into custody of property prior to the securing of a judgment for a past-due debt.

Requirements of a Security Agreement

A RECORD, that DESCRIBES THE COLLATERAL (sufficient to reasonably identify the collateral), AUTHENTICATED by the debtor (signed or otherwise executed or under a possession/control exception), and a GRANTING CLAUSE. ("I hereby grant you a security interest in ...")

Contents of a Security Agreement

A Record (description of the collateral) Authentication by the debtor (signature or under possession/control exception) Granting Clause ("I hereby grant you a security interest in ...")

buyer in the ordinary course of business

A buyer who, in good faith and without knowledge that the sale violates the ownership rights or security interest of a third party in the goods, purchases goods in the ordinary course of business from a person in the business of selling goods of that kind.

Deficiency judgment

A judgment given by a court when the value of security pledged for a loan is insufficient to pay off the debt of the defaulting borrower.

Floating lien

A security interest in proceeds, after-acquired property, or collateral subject to future advances by the secured party (or all three); a security interest in collateral that is retained even when the collateral changes in character, classification, or location.

PMSI

A security interest that arises when a seller or lender extends credit for part or all of the purchase price of goods purchased by a buyer.

Continuation statement

A statement filed to extend the time limit on a financing statement that had been filed earlier (must be filed 6 months before expiration date of original statement, extends time limit for another 5 years. Can be continued indefinitely if these steps are repeated)

Tangible collateral

Also known as goods. Four types: 1. Consumer Goods 2. Farm Products 3. Inventory 4. Equipment

Accounts receivables

Amounts owed to the company by its customers that represent future cash inflows.

Execution

An action to carry into effect the directions in a court decree or judgment.

Unsecured creditor

Creditor whose claim is not supported by collateral, such as a credit card

Secured creditor

Creditor whose claim is supported by collateral, such as a lender on a mortgage

Three Methods of Perfection

Possession of collateral Statutory registration or filing Notice to the debtor or a fundholder

Collateral

Something of value that a borrower lets the lender claim if a loan is not repaid (aka the property subject to a security interest)

Perfection

The legal process by which secured parties protect themselves against the claims of third parties who may wish to have their debts satisfied out of the same collateral; usually accomplished by the filing of a financing statement with the appropriate government official.

Cross-collaterization

The use of an asset that is not the subject of a loan to collateralize that loan.

authentication

To sign a record, or with the intent to sign a record, to execute or to adopt an electronic sound, symbol, or the like to link with the record. A record is retrievable information inscribed on a tangible medium or stored in an electronic or other medium.

Proceeds

Whatever is received when the collateral is sold or otherwise disposed of, such as by exchange.

Debtor

a person who owes money

Security Interest

any interest in a property that secures the payment of an obligation

Future Advances

creditor + debtor can create a line or credit by agreeing that collateral will serve as collateral for new loans, as well as for current loan.

After-acquired Property

items that the debtor obtains after the parties have made their security agreement