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56 Cards in this Set
- Front
- Back
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Options of the Potential Creditor
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A. Outright refusal
B. Obtain a promise to repay: this is an unsecured or general creditor. If debtor fails to pay, the creditor must bring suit, and have the sheriff seize enough of the debtor's non-exempt property to satisfy the judgment. This is expensive and time consuming. C. Obtain a surety (e.g., co-signor on a loan). D. Obtain collateral: the creditor might require the debtor to place some of the debtor's property at risk so that if the debtor does not pay, the creditor may take property. (1) Real Property: the creditor may obtain a mortgage or a deed of trust over the land. (2) Personal Property: the creditor may obtain a security in debtor's personal property under Article 9 of the U.C.C. |
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Basic Approach
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1. Is the transaction within the scope of Article 9?
2. Classify the collateral. 3. Determine if the security interest has been created, that is, has attachment occurred. 4. Determine if the security interest has been properly perfected. (Fights between claimants over collateral; if a creditor is "perfected," he has better status.) 5. Determine if the security interest has been properly perfected. 6. Apply proper priority rules and rules regarding repossession. |
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Scope of Article 9
Subject Matter: Collateralized Transactions Property ready owned by debtor Purchase Money Security Interest (PMSI) After-Acquired Property |
Any transaction (regardless of its form) which is intended to create a security interest in personal property or fixtures.
The property used as collateral may be: a. Already owned by the debtor b. Property acquired with a loan: purchase money security interest (PMSI) In a PMSI, he lender and the seller may be the same entity, or different. If the lender and seller are different, the lender must be able to trace the exact money it lent to the debtor into the collateral. Thus, the lender typically makes the loan check payable to "Seller" or to "Seller and Debtor." N.B. PMSIs often have special (better) rules than other types of security interests. c. After-acquired: property you buy now or will acquire in the future can be used as a collateral. |
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Subject Matter: Collateralized Transactions
Sale of Receivables |
The outright sale of accounts, chattel paper, payment intangibles, and promissory notes are covered by Article 9.
Ex. A merchant offers to sell a bank his outstanding accounts receivable owed him by his customers who purchased his products. As these accounts came due, he agreed to collect from the customers and turn the money over to the bank. Even though this is a sale, and not a secured loan, Article 9 applies and the bank must comply with Article 9 just as if it were a collateralized loan. |
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Subject Matter: Collateralized Transactions
Consignments |
A consignment is a bailment by the owner/bailor/consignor under which the bailee/consignee has authority to sell, and will receive a commission.
To the world, consignee appears to own the goods. This allows consignee to possibly deceive creditors that he owes the consigned goods. Thus the true owner (consignor) may be required to comply with Article 9 to gain protection over consignee's other creditors. Requirements: a. Consigned goods are worth a total of $1000 or more, and b. The consignor did not use the goods for personal, family, or household purposes, and c. Potentially Deceptive Consignee: he must be in a position to deceive creditors with the consigned goods: (1) Consignee deals with goods of that kind under a name other than the consignor's name, (2) Consignee is not an auctioneer, and (3) Consignee is not generally known by consignee's creditors to be substantially engaged in selling consigned goods. |
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Subject Matter
Agricultural Liens Created By Statute Lease-Purchase Agreements |
Article 9 covers agricultural liens, that is, nonpossessory liens on farm crops, such as crops and livestock created by state law in favor of a person who provides goods or services to a farmer. (Never been tested).
Article 9 does not govern true leases of personal property in any manner. Thus, when the lease term is over, lessor can recover the leased property without complying with Article 9 free of lessee's creditors. But, a lease which is actually an installment sale is covered. Examples of evidence of secured transaction: - Lease term is equal to or greater than remaining economic life of goods, or - Lessee owns property at end of lease term, or - Lessee has option to buy for nominal consideration at the end of lease term. |
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Exclusions from Article 9
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1. Rights governed by federal law
2. Real property (except fixtures) 3. Commercial torts (however, commercial torts, i.e., business claims that do not involve personal injury, are covered, e.g., unfair competition) 4. Deposit accounts in consumer transactions (e.g., a check or savings account; to protect consumers you cannot use this as collateral under Article 9, but business deposit accounts are within Article 9). 5. Statutory liens (e.g. landlord's lien, mechanics' lien). 6. Wage assignments |
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III. Classification of Collateral
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Importance: many rules regarding perfection, priority, repossession, resale, etc. depend on the type of collateral involved.
Classifications are mutually exclusive - any particular item can be only one type of collateral. Debtor's use is determinative - classify the collateral from the debtor's perspective. |
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A. Classification of Collateral as "Goods"
1. In General 2. Specific Inclusions 3. Specific Exclusions |
a. Moveable Items & Fixtures
b. Specific Inclusions (1) Standing timber, trees (2) Growing crops (3) Unborn young of animals c. Specific Exclusions (1) Money (if you have it, don't need a secured transaction) (2) Minerals before extraction (do not become "goods" until extracted). (3) Collateral that fits other categories. |
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Classification of "Goods" in 1/4 Subcategories
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A. Consumer Goods -- used or bought primarily for personal, family, or household purposes
B. Equipment -- used or bought for use primarily in business (including farming and professions ); includes goods bought by a non-profit organization or a governmental subdivision or agency. Equipment is the DEFAULT category; if a good does not fit within the other three categories, it is equipment. C. Inventory -- (1) Goods held for sale or lease in the ordinary course of business; (2) Raw materials & work in progress; (3) Consumed materials d. Farm Products: crops and livestock of any kind; to be a farm product, two requirements: (1) In possession of the farmer engaged in farming operations and (2) in an unmanufactured condition (a fact question). e. Multiple Uses: principle use determinative |
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Classification of Goods
Semi-Tangible and Intangible Collateral (8 Categories) Instruments Documents Chattel Paper |
1. Instruments: represent money (e.g. checks, drafts).
2. Documents: written or electronic representation of goods, that is, documents of title under Article 7. a. Warehouse Receipt -- goods in storage b. Bill of Lading -- goods in transit. 3. Chattel Paper: single writing or group of writings evidencing two things: (a) monetary obligation (e.g., promissory note), plus (b) security interest in or lease of goods. If chattel paper stored on paper, called tangible chattel paper. If chattel paper stored electronically, called electronic chattel paper. |
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Semi-Tangible and Intangible Collateral (8 Categories)
Accounts Deposit Accounts Investment Property Commercial Tort Claims General Intangibles |
Account: any right to the payment of money for goods sold or eased or for services not rendered NOT evidenced by an instrument or chattel paper. The typical accounts receivable of a business -- what your clients will owe you. Includes contract rights which have not yet been earned by performance. Includes computer software license fees and credit card receivables.
Deposit accounts: checking and savings accounts with a financial institution (but not a certificate of deposit, which is an instrument). Investment property: "Wall Street stuff" stocks, bonds, MF Commercial Tort Claims: business tort claims that do not involve personal injury (e.g., unfair competition). General Intangibles: any other type of personal property, except money (e.g., liquor license, good will of a business, promise to use one's "immortal soul"). |
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Classification of Goods: Proceeds
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Proceeds are whatever is received upon the sale, exchange, collection or other disposition of collateral or proceeds.
Ex. David used his truck and computer as collateral for a loan. He traded in his truck for a motorcycle and sold his computer for cash. The motorcycle and the cash tare proceeds of the original collateral. Proceeds may include collateral a creditor could not have a security interest in if originally used as collateral, such as cash in the above example. |
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Attachment
Definition 3 Elements*** |
Attachment is the process by which a security interest is created and becomes enforceable against the debtor so the creditor can repossess the collateral if the debtor does not pay.
Three elements (VCR): 1. Creditor gave value 2. Contract -- the security agreement 3. Debtor has rights in the collateral. The elements of attachment may occur in any temporal order. No attachment until ALL elements satisfied. |
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Attachment
Creditor Gives Value Contract -- The Security Agreement Methods of proving the security agreement (3) |
Creditor gives value: e.g., lends money or goods/services on credit.
Contract--the security agreement between the creditor and the debtor in which the debtor gives the creditor a security interest in the collateral. Methods of proving the security agreement: (1) Oral, (2) Authenticated Record, (3) Conduct |
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Proof of the Security Agreement: Oral
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Methods of proving the security interest:
1. Oral: the security agreement may be oral only if the collateral is in the creditor's possession (a situation often called a "pledge"). The creditor has a duty to take reasonable care of collateral in the creditor' possession. (Common example, a pawn shop). |
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Proof of the Security Agreement: Authenticated Record
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2. Authenticated Record
a. Evidence of Record: a record may be written or electronic as long as it is signed or marked electronically with present intent to identify the debtor and adopt the agreement. b. Description of collateral: description must reasonably identify the property, that is, make it clear what property the creditor may repossess if the debtor defaults. The description can be inexact, but still sufficient. The description may be of category or type "all my equipment", quantity, computational formula, or any other method which is objectively determinable. However, consumer goods and commercial tort claims may be not described by type alone; the description must be more specific. ("All my consumer goods" would not be sufficient; "all my personal goods" is inadequate and super-generic). |
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Proof of the Security Agreement: Control
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The security agreement may be demonstrated by control if the collateral is nonconsumer deposit accounts, electronic chattel paper, or investment property.
Control basically means the creditor has the right to sell or cash in the collateral without further action from the debtor. |
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Debtor Has Rights in the Collateral
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A debtor cannot give a security interest in property without having rights in the property such as ownership or identification to a contract.
Debtor cannot use another person's property as collateral without that person's permission. |
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Attachment: After-Acquired Property *Red Flag Issue*
1. Using New Property as Collateral For a Loan 2. Consumer Goods Exception |
1. Using New Property As Collateral For a Loan
The debtor can agree that new acquisitions of property will serve as additional collateral for an old loan. This is often referred to as a "floating lien" and is very common with inventory and equipment. Note: the security interest cannot attach until the debtor actually buys the property that will serve as collateral--only then does he have rights in the collateral. 2. Consumer Goods Exception An after-acquired property clause will work only for consumer goods acquired within 10 days of the creditor giving value. 3. Commercial Tort Claim Exception After-acquired property clauses will not work with commercial tort claims. |
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Attachment: Future Advances *Red Flag
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Debtor can agree that the collateral will serve as collateral for future (new) loans, as well as the current loan.
Ex. a line of credit arrangement. You own a business and a machine (owned 100%) whose FMV is $100,000. You want to use the machine as collateral for a bank loan. Bank offers $75,000 for the machine. You object, because if you get the $75,000 immediately, you have to pay interest on $75,000. Instead, you ask for $25,000 upfront, and then later on you can ask for another $10,000 (out of the remaining $50,000). That $10,000 is the future advance. |
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V. Perfection
Analysis Debtor vs. Creditor Creditor vs. Third Party |
If the fight is between the debtor and the creditor, go to the default analysis. The creditor will usually prevail if the creditor has attached.
If the fight is between the creditor and a third party claiming the same collateral, perfection is relevant. Perfection is the process by which the creditor protects the security interest from most other claimants to the same collateral. |
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Elements of Perfection
Attachment |
1. Attachment
a. Creditor Gives Value b. Contract -- Security Agreement c. Debtor Has Rights in the Collateral 2. Act of Perfection Appropriate act of perfection depends on type of collateral. May be just one method or several. a. Possession of collateral by creditor b. Filing of financing statement by creditor c. Automatic permanent -- attachment alone is sufficient d. Automatic temporary -- attachment alone sufficient for short period of time e. Control f. Notation of security interest on certificate of title |
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Perfection By Possession *highly tested, need to know to determine priority*
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1. Almost All Collateral May be Perfected by Possession (it puts the world on notice that creditor has possession, not the debtor
2. Exceptions: the following types of collateral may NOT be perfected by possession (generally too "intangible" to be possessed): accounts, deposit accounts, nonnegotiable documents, electronic chattel paper, general intangibles. 3. Loss of Possession a. General Rule: if the creditor no longer has possession of the collateral, perfection is lost (as if creditor never had possession, unless security interest perfected by some other method) b. 20 day exception for instruments, negotiable documents, and certificated securities). c. Filing of Financing Statement - the UCC-1 |
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Perfection by Filing of Financing Statement - the UCC-1
*By far the most commonly tested* What types of collateral can be perfected by filing? What cannot? Requirements of the financing statement |
Almost all collateral may be perfected by filing
Exceptions: deposit accounts, money Requirements of financing statement (purpose to put others on "inquiry notice" of creditor's security interest): a. Names of debtor and creditor b. Addresses of debtor and creditor (exception: if financing statement is accepted by filing office) c. Debtor's authorization in an authentication record. Written, electronic, but NOT oral. Authorization of the financing statement is automatic if the debtor authenticated the underlying security interest. Debtor does not have to sign the financing statement in order to authorize. Debtor may authorize financing statement after filing. 4. Description of collateral May be in broader terms than the security agreement as "all assets." After-acquired property covered by the security agreement that fits within the description is automatically included. e. Description of the land if the collateral is timber, minerals, fixtures, or crops. |
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Errors in financing statement
Designation of debtor in financing statement |
Minor errors that are not seriously misleading are excused.
Designation of the debtor (very important! because statement filed under debtor's name) a. Individual = name on his driver's license b. Registered organization = official name, registered on public record c. Trade name = not sufficient unless extremely similar to the debtor's name (must be so similar to the debtor's name that the financing statement would be discovered in a search of the Secretary of State's records in response to a request using the debtor's name). |
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Change in Debtor's Name
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a. Collateral debtor has at the time of the name change - perfection continues
b. Collateral debtor obtains within 4 months of name change - perfection will continue c. Collateral debtor obtains after 4 months of name change - perfection ends unless refiled under new name within 4 month period. |
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Place of Filing
Duration Continuation Statement |
General Rule = Secretary of State's office in Austin BUT fixtures, minerals, timber to be cut = county where a mortgage on the real estate would be filed. (Watch out!)
A financing statement is effective for 5 years from the date of filing. Important exception: a recorded real property mortgage covering fixtures continues until the mortgage is released or satisfied. To extend the effectiveness of a filing, creditor should file the continuation statement within 6 months prior to the expiration date and before the 5 years expires. |
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Termination Statement
Fraudulent Filing |
Consumer goods = required
The creditor must FILE a termination statement in a timely manner, that is, the earlier of: (1) within 20 days after the debtor's written demand; or (2) within 1 month after there is no outstanding secured obligation or commitment to make advances, even without a demand from the debtor. b. Non-consumer goods = only upon the debtor's request Creditor must PROVIDE the debtor with a termination statement within 20 days of written demand. The debtor has the responsibility of filing the termination statement and must incur the cost. Fraudulent filing: a person may not file a financing statement the person knows is forged, contains a material false statement, or is groundless. Maximum penalty = $5,000 plus court costs and reasonably attorneys fees. |
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Automatic Permanent Perfection (Secured + Attachment = Perfection)
Purchase Money Security Interest in Consumer Goods*** Assignment of Insignificant Amount of Debtor's Accounts Sale of Promissory Notes |
Ex. Bank loans Consumer money with which he buys a refrigerator. If he signs a security agreement giving Bank a security interest in the refrigerator, Bank is perfected without having to file a financing statement assuming the money is actually used to buy the collateral.
Warning: this special PMSI rule is only for consumer goods that are NOT either certificate of title or fixtures. |
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Automatic, Temporary (20 days) Perfection
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1. Proceeds: automatically perfected for 20 days from the debtor's receipt of the proceeds. But this can be extended beyond 20 days.
2. New value for instruments negotiable documents and certified securities: automatic perfection for 20 days (a grace period to perfect using normal methods--filing or taking possession) from time of attachment if the creditor gives new value. 3. Delivery of instrument, negotiable document, or certified security to debtor for 20 days for certain purposes (e.g., sale, exchange, or presentation of the collateral). Ex. Car dealer accepts promissory notes for amounts owed from customers buying on credit. Dealer uses these notes as collateral for a loan. When the notes matured and needed to be presented to customers for payment, Bank would return the notes to Dealer for that purpose. Bank gave up possession, but has "temporary possession" for 20 days following surrender. But if Bank does not regain possession before expiration of 20 days, perfection lost. |
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Control
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1. Investment property,** nonconsumer deposit accounts, electronic documents, electronic chattel paper.
Defined: control means the creditor has the right to sell or cash in the collateral without further action from the debtor. If a deposit account, secured party has control if the secured party IS the bank in which the deposit account is maintained. |
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Notation on Certificate of Title
Items Covered |
Items covered: motor vehicles, boats, manufactured housing.
Perfection if collateral consumer goods or equipment = notation of security interest on certificate of title. Perfection if collateral inventory = file or take possession Ex. if the debtor is a car dealer, the creditor should perfect by filing or taking possession of the cars. |
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Special Rules for Proceeds
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1. General Rule: perfection continues for 20 days
2. When perfection continues beyond 20 days a. Same office rule: original security interest perfected by filing a financing statement covering the proceeds would be filed in the same place as the original collateral b. Identifiable (separated) cash proceeds c. Proceeds perfected within 20 day period: the perfection could occur without further action on the creditor's part or the creditor might need to take action to perfect. |
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Special Rules for Multi-State Transactions
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Issue: What state's version of the UCC is used to determine whether a creditor is perfected?
General rule: law of the state where the debtor is located (individual = principal residence) (registered organization = law of the state where organized) (unregistered organization = place of business, but if more than one place of business, chief executive office). |
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Exceptions to Rules for Multi-State Transactions
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Exceptions where creditor must follow law of the collateral's location:
a. Security interests perfected by possession (makes sense because that is where the collateral is now located) b. Fixtures and timber (attached to ground) c. Agricultural lines = law of state where farm crop covered by the lien is located. Other exceptions: a. certificate of title items = law of state which issued most recent certificate of title; b. deposit accounts = law of state in which bank has its chief executive office. 5. Debtor or collateral changes states a. General rule = if debtor moves, perfection continues for 4 months b. Perfection by possession = perfection continues as long as perfected under new state's law c. Certificate of title items = perfection continues as long as it would have under the original certificate of title. |
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VI. PRIORITIES (the crux of secured transactions)
Two-step process |
Step 1: classify the persons claiming collateral
Step 2: determine who prevails by applying priority rules Note: by contract, the competing parties may agree to a priority order different from the normal rules. This is called subordination. |
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PRIORITIES
Battle One Secured Creditor vs. Unsecured/General Creditor (House vs. No House) |
Secured creditor prevails
Perfected status of unsecured creditor is irrelevant! Ex. Debtor grants Bank security interest in Debtor's computer. Debtor has financial difficulties and quits paying both bank and his Visa account. Bank has priority in computer regardless of Bank's perfected status because Visa is unsecured. |
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Battle Two
Secured Party vs. Secured Party 1. Priority between unperfected secured parties 2. Priority between unperfected and perfected secured parties |
1. Both creditors unperfected: first to attach has priority.
2 One creditor perfected: perfected creditor prevails (priority, knowledge irrelevant). Ex. In 2008, Debtor grants ONB a security interest in its equipment, but ONB did not file a financing statement or otherwise perfect its interest. In 2010, Debtor granted SNB a security interest in the same equipment and told SNB about the previous security interest granted to ONB. SNB properly perfected. Debtor stops paying ONB and SNB. SNB prevails because it is perfected. |
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Battle Three (Most Common)
Both Creditors Perfected |
General Rule = first creditor to either (1) file or (2) perfect
First creditor to do the FIRST of filing OR perfecting (NOT BOTH). Doesn't matter which creditor had the first security agreement with the debtor; which creditor attached first; which creditor perfected first if one creditor filed before that perfection; knowledge of creditor A who filed first that creditor B has subsequently filed and perfected, but before creditor A perfects is irrelevant. **Very important, look at short outline for examples** |
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Exception if one creditor has PMSI Security Interest in goods (other than inventory and livestock)
**Highly tested** |
The PMSI creditor prevails (even though second) if it is perfected:
(1) at the time the debtor possession of the collateral, or (2) within 20 days of when the debtor received possession of the collateral. |
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Exception if one secured creditor has PMSI in inventory
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PMSI creditors have superiority over a conflicting security interest in the same inventory or proceeds of the inventory that are chattel paper, instruments, or cash if:
(1) PMSI creditor is perfected at the time debtor receives possession (filing must take place before the inventory is delivered to the debtor; no 20 day grace period), and (2) PMSI creditor gives written, authenticated notification to all creditors who have already filed with respect to collateral. This notice must explain that the creditor is obtaining a PMSI in inventory, describe the collateral, and be given before the debtor receives possession of inventory. The notice is effective for deliveries of the same type of collateral for 5 years. Note that a similar rule applies to PMSIs in livestock |
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Other Exceptions for
Deposit accounts and investment property |
Exception if one creditor has a PMSI in livestock
- same rules apply as for PMSI in inventory Exception for deposit accounts - secured party with control prevails Exception for investment property - secured party who has control over investment property has priority over a secured party who does not have control (e.g., a secured party who perfected by filing). |
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SECURED PARTY v. DONEE
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If the debtor makes a gift of the collateral to a donee, the collateral remains subject to the security interests in the donee's hand.
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SECURED PARTY v. PURCHASER
General Rule If Debtor Has Permission to Sell If Secured Party Unperfected at Time of Purchase (General Rule and PMSI Exception) |
1. General rule = secured party prevails
2. Debtor has permission to sell = purchaser prevails 3. Secured party unperfected at time of purchase a. General Rule: purchaser wins if: (1) Buyer gives value, (2) Buyer receives delivery of the item, and (3) Buyer has no knowledge of security interest at time of delivery PMSI Exception: If PMSI creditor perfects within 20 days after debtor receives the collateral but after debtor sells collateral to purchaser, creditor will prevail over the "gap purchaser." |
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SECURED PARTY v. PURCHASER
Buyers in the Ordinary Course of Business |
A buyer in the ordinary course of business can prevail even over a perfected creditor if the following requirements are satisfied:
a. Good faith: honesty in fact and observance of reasonable commercial standards b. Without knowledge of a security interest violation c. Purchase of goods that are not farm products d. Ordinary purchase from a person in the business of selling goods of the kind e. Security interest created by the seller f. Creditor not perfected by possession |
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SECURED PARTY v. PURCHASER
Consumer Purchaser of Consumer Goods |
Purchaser prevails if:
a. Consumer goods in seller's hands b. Consumer goods in buyer's hands c. Buyer has no knowledge of security interest d. Buyer pays value e. Creditor not perfected by possession f. Creditor's interest is unfiled prior to purchase |
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SECURED PARTY v. PURCHASER
Buyers Not in Ordinary Course of Business vis-a-vis Future Advances |
The creditor gives more money to the debtor based on collateral that the debtor has already sold to a purchaser who does not qualify as a buyer in the ordinary course of business.
A non-buyer in the ordinary course of business can prevail over a secured creditor for future advance amounts (not the prior advances) made after the FIRST of these events occurs: a. Secured creditor obtains knowledge of the purchase, or b. 45 days have elapsed from the date of the purchase |
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SECURED PARTY v. PURCHASER
Holder in Due Course of Negotiable Instrument |
A holder in due course will prevail over earlier perfected interests in the negotiable instrument.
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SECURED CREDITOR v. LIEN CREDITOR
Lien Creditor Defined General Priority Rules PMSI Exception Future Advances |
A lien creditor is a general (unsecured) creditor who have acquired a judicial lien by a levy on the debtor's property. The term also includes the bankruptcy trustee.
If secured creditor unperfected at time lien attached = lien creditor prevails If secured creditor perfected at time lien attached = creditor prevails PMSI Exception: If a purchase money secured creditor perfects by filing within 20 days after the debtor receives possession, the creditor will defeat lien creditors who obtained their liens in the gap period. Future Advances: the secured creditor will lose priority to a lien creditor for future advances after BOTH of the following two events occur: (a) the secured creditor obtains knowledge of the lien, and (b) 45 days elapse from the date of the lien. |
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SECURED CREDITOR v. STATUTORY MECHANICS LIEN
Statutory Lien Prevails If... |
1. Person furnished servies or materials with respect to the goods covered by the security interest,
2. Furnishing was in the ordinary course of business, and 3. Collateral is in the possession of the statutory lien holder. |
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PROCEEDS
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Priority rules for the proceeds is the same as the priority in the original collateral as long as the security interest in the proceeds is perfected.
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FIXTURES - SECURED PARTY v. HOLDER OF REAL PROPERTY MORTGAGE
Fixture Defined |
Ordinary building materials that cease to be "goods" when incorporated into a structure become real property.
Thus, a creditor with a security interest in these ordinary building materials loses its security interest once construction occurs. A fixture is a good which is not completely integrated into the building although it is so related to the real estate that an interest in it arises under the real estate law. A fixture can be removed, but some damage will occur to the realty. |
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FIXTURES - SECURED PARTY v. HOLDER OF REAL PROPERTY MORTGAGE
General Rules of Priority |
A secured party may win if:
Perfected before the real estate interest recorded, and Perfected with a fixture filing (a financing statement which meets the following additional requirements): (1) Describes the real property (2) Filed in the office where a mortgage on the real property would be recorded. |
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FIXTURES - SECURED PARTY v. HOLDER OF REAL PROPERTY MORTGAGE
Purchase Money Security Interest Exception |
Purchase-money secured creditor, even though perfected after real property interest is of record, can prevail if:
(1) The purchase money secured creditor perfected by fixture filing (2) within 20 days of the good becoming a fixture; and (3) the competing real estate interest is not a construction mortgage (that is, the loan which enabled the whole building process to begin and thus is not defeated by a later purchase-money security interest). |
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FIXTURES - SECURED PARTY v. HOLDER OF REAL PROPERTY MORTGAGE
Readily Removable Collateral Judicial Liens |
Sometimes, there is a debate whether an item is a fixture or merely a good. Generally, if the good is readily removable, it will be treated as a regular good, rather than as a fixture, and thus may be perfected without a fixture filing.
A security interest in fixtures that is perfected in any manner prevails over a later-acquired judicial lien, even if the perfection was not done via a fixture filing. |
