2.0 BUSINESS LAW 2.6 SECURED TRANSACTIONS SECURED TRANSACTION OVERVIEW (UCC Article 9) In general, secured transactions refer to transactions of credit that are secured by a security interest The following items outline the concepts, sequentially, that administer secure transactions: • • • Security Interest Attachment Perfection SECURITY INTEREST • Defined – A creditor’s right to to take property (collateral) upon a debtor’s failure to repay an obligation • Relevant Property: Property Included – Personal Property Property Not Included – Real property, wage claims, mechanic’s liens • Types of Collateral Consumer Goods – Goods used for personal purposes Equipment – Goods used for business purposes Inventory – Goods held for sale, lease, or contract of service Proceeds – Payment in connection with future sale, lease, etc Payment Intangible – Accounts held in connection with goods or services rendered (A/R) Investment Property – Securities such as stocks, bonds, etc ATTACHMENT Per Article 9, the security interest attaches to collateral when it becomes enforceable against the debtor with respect to the collateral Requirements for Attachment • Value has been given • Debtor has right in the collateral • Debtor has authenticated a security agreement or creditor has taken control or possession of collateral PERFECTION Forms of Perfection • Perfection by Filing – Refers to when a debtor files a security agreement or the either party filing a financing statement • Perfection by Pledge – Refers to when a creditor has taken possession of collateral (usually good – consumer goods, equipment, or inventory) • Perfection by Control - Refers to when a creditor has taken possession of collateral (usually proceeds, payment intangible, or investment property) For example, control is evidenced by the debtor contracting their broker and directing the broker to give all rights to the creditor • Automatic Perfection – Refers to when a perfection occurs automatically without the need for a security agreement Purchase Money Security Interest (PMSI) - Refers to when (a) creditor sells aconsumer good (collateral) to a debtor and retains a security interest for the amount of purchase or (b) a creditor advances money to a debtor to purchase a consumer good (collateral) • Temporary Perfection – Occurs when perfection occurs without filing and remains perfected for a 20 day period For example, in connection with a sale of the original good (collateral) the new good remains perfected for a period of 20 days PRIORITIES Priority, in this context, refers to the ordering of competing security interests in the same asset • Priority of Security Interest Buyer in Ordinary Course of Business (including HDC) PMSI Properly Perfected Security Interest (perfection other than PMSI) Unperfected Security Interest Debtor RIGHTS ON DEFAULT • Taking Possession - After default, a secured party is permitted to take possession either peacefully or through the judicial system through replevy (order to transfer property) • Sale of Collateral – After taking possession of the property, a secured party may and sell the collateral • Priority of Sale Proceeds Repayment of possession and sale expenses Repayment of highest priority creditor Repayment of other secured creditors Debtor • Effect of Sale – Claims on debtor’s secure property are eliminated ... property, a secured party may and sell the collateral • Priority of Sale Proceeds Repayment of possession and sale expenses Repayment of highest priority creditor Repayment of other secured creditors... PMSI) Unperfected Security Interest Debtor RIGHTS ON DEFAULT • Taking Possession - After default, a secured party is permitted to take possession either peacefully or through the judicial system through