Is a means by which a secured party gains priority to a debtor's collateral over other third parties who also claim to have an interest in the same collateral. Types of third parties who may claim a conflicting interest are unsecured creditors, secured parties (unperfected) including lien holders, perfected secured parties, trustees in bankruptcy, and purchasers of the collateral.
perfection is automatic upon creation of the security interest (no filing or possession required). Applies only in a few situations. Two most important are: 1. A purchase money security interest in consumer goods - UCC 9-309(1). AND 2. A security interest created by an assignment of a beneficial interest in a decedent's estate. Note: This does not apply to a beneficial interest in a trust - filing is now required - UCC 9-302(1)(c).
are goods used or bought primarily for personal, family, or household purposes - UCC 9-102(a)(23).
Purchase money security interest (PMSI)
is created when the interest is taken or retained by the seller of the collateral to secure the price - UCC 9-103(a)(2), OR, when the interest is taken by a person who advanced or gave value to the debtor to enable the debtor to acquire rights in or the use of the collateral if, in fact, the value is so used - UCC 9-107(b).
Purchase money security interest
What does PMSI stand for?
Other Collateral Subject To Automatic Perfection
a. A sale of payment intangibles;
b. A sale of promissory notes;
c. An assignment of health-care-insurance receivables to the health care provider;
d. Supporting obligations such as letter-of-credit rights, secondary obligations (guarantees, etc.) that support payments on accounts, chattel paper, instruments, general intangibles, etc. - UCC 9-308(d), 9-309
Is usually impracticable - however a pledge, pawn of goods, or transfer of instruments or chattel paper are illustrations.
Letter of Credit Rights
Perfection is by control unless it is a supporting obligation - UCC 9-308(d), 9-312(b)(2).
Electronic Chattel Paper
Perfection is by filing or control unless it is a supporting obligation - UCC 9-310(a), 9-313(a), 9-314(a).
Used as original collateral can be perfected only by control - UCC 9-312(b)(3).
Can only be perfected by possession - UCC 9-312(b)(3).
(Such as securities, security accounts, security entitlements, etc.) May be perfected by filing - UCC 9-312(a) - or control - UCC9-314. For priority purposes, perfection by control prevails over perfection by filing - UCC 9-328(1).
Filing Location for Perfection
For all classifications of collateral, except those listed below or where perfection is limited to possession, or control, or specified in a statute, perfection is in the state where the debtor is located - UCC 9-301.
location of the debtor is determined
i. For individual debtors, it is his or her principal residence;
ii. For a chartered or entity created by a filing, it is the state of charter or filing; (For example, a Delaware chartered corporation who received a secured loan from a Texas bank, the Texas bank to perfect by filing is in Delaware.)
iii. For all other entities, it is the location of the business or, if more than one, the state where the chief executive office is located.
Exceptions for Filing Location for Perfection
i. For fixtures, timber to be cut, and collateral to be extracted (such as oil, coal, gas, minerals) filing is in the jurisdiction where the collateral is located and the filing must include a description of the realty - UCC 9-301(3)(4), 9-502(b).
ii. For possessory security interests, perfection (and priority) is in the jurisdiction where the collateral is located - UCC 9-301(2).
iii. For certificated securities perfection is where the security certificate is located, but for uncertificated securities it is the location of the issuer - UCC 9-305(a)(1)(2).
Temporary Perfection Without filing or possession
For 20 days from creation of the security interest by authenticated security agreement:
1. Certificated securities, negotiable documents, and instruments if new value is given.
Temporary Perfection If perfected
Remains perfected for 20 days without a filing:
1. For goods in possession of a bailee or a negotiable document where the secured party makes available the goods or documents to the debtor for sale, exchange, loading, shipping, etc.;
2. For a certificated security or an instrument where the secured party delivers the security certificate or instrument to the debtor for sale, exchange, collection, presentation, etc.
A buyer in the ordinary course of business
Is a buyer who buys goods from a merchant (a seller who deals in goods of that kind) - UCC 1-201(9).
How many years is a properly filed financing statement effective for?
How many more years can a properly filed financing statement be extended for if a continuation statement is filed (only) during the six-month period prior to the expiration of the five year period - UCC 9-515.
A secured party can release all (used as a termination statement) or part of any collateral described in the filing thereby terminating its security interest in that collateral. Record of the release is by filing a uniform amendment form - UCC 9-512, 9-521(b).
A secured party can assign all or any part of the security interest to a third party assignee, and the assignee can become the secured party of record if the assignment is filed by use of a uniform amendment form - UCC 9-514, 9-521(a).
If debtor and secured party so agree, the filing can be amended (such as, by adding new collateral if authorized by the debtor) by filing a uniform amendment form, which indicates by file number the initial financing statement - UCC 9-512(a). The amendment does not extend the time period of perfection, but, if the amendment adds collateral, the perfection date (for priority purposes) for the new collateral only begins at date of the filing of the amendment - UCC 9-512(b)(c).