36 terms

MGMT 643 - Secured Transactions

Secured Transactions
A way to get debtor to voluntarily put up collateral
Security Interest
An interest in personal property or fixtures that secures payment or performance of an obligation - that is, the interest granted the secured party
Secured Party/Creditor
A lender, seller, or other person in whose favor a security interest exists
A person who owes payment or other performance of the obligation that is secured, regardless of whether he or she owns or has rights in the collateral
Security Agreement
A security arrangement between the debtor and the secured party - the agreement that creates the security interest
The property subject to a security interest
The taking, by a secured creditor, of those steps which are required under the UCC in order for his or her security interest to be valid as against other creditors
Financing Statement
The instrument filed to give public notice of the security interest in the collateral
Tangible Goods
Touchable personal property
Consumer Goods
Used or bought for personal or household purposes
Farm Products
Crops, livestock, supplies used in farming and ranching
Held by debtor for lease or sale to the public
Used by a business to make goods and/or services to sell to the public
Intangible Goods
Not touchable property
Negotiable instruments, stocks, bonds
An attachment (or hook)
How to create security interest?
-Create a contract (security agreement) in which Debtor gives Secured Party a "lien" on his collateral
-Secured party must give value to debtor (loan, $)
-Debtor must own collateral (now or in future)
How to perfect security interest?
Filing of a Financing Statement
Contents of a Financing Statement
Name and address of debtor and secured party, and the description of the collateral
3rd Party Buyers
1) If Buyer in ordinary course of business - Buyer takes free of secured party's security interest in collateral - except farm products
2) If Buyer NOT in ordinary course of business - Buyer usually doesn't take free of the security interest - liquidator
Floating Lien Theory
Lien "floats" over to other property and/or to secure other debts
After-Acquired Property
All equipment now owned or HEREAFTER located at debtor's factory - even future property
Mother-Hubbard Clause
Everything is collateralized to first bank
Future Advances
These goods shall serve as collateral for this debt as well as any future debts I have with you
Collateral secures any other debts I have
Not only do these goods serve as collateral, but also any $ received from their sale - retail store
Secured vs. Unsecured Interest
Secured gets 1st bite before unsecured and for enough collateral to satisfy their secured debt
Secured vs. Secured Interest
1st secured to perfect gets bite before other secured parties
Default by Debtor:
1) Sue debtor and hope to collect from non-exempt property (difficult in Texas)
2) Go to court and get Judge to foreclose security interest
3) Use "self-help" to re-possess the collateral? -> OK if done PEACEFULLY - no violence or threat of violence
4) Debtor peacefully surrenders the property
When the creditor realized they can't collect from debtor
Turns any time instrument to sight instrument, but creditor must have reason
Disposal of Collateral
Public Sale
Preferred, give debtor notice
Private Sale
Perishable goods or recognized market
Can secured party be buyer?
Yes, usually only bidder
Innocent Buyer
Takes free of old owner's interest in goods and old owner "can't get goods back" - USUALLY
Keep the Collateral? In Satisfaction of the Debt?
Yes, the creditor can keep the collateral, but it depends - if consumer good and if debtor has paid:
1) More than or equal to 60%, Bank must sell and give equity to the debtor
2) Less than 60%, Bank can keep but debt is now paid in full
Application of Proceeds of Sale of Collateral
1) Sales Expenses - advertising, auctioneer, attorney fees
2) Payment of 1st secured party's debt
3) Payment of any other secured party who has security interest in SAME COLLATERAL
4) Remainder (if any) to debtor - NOT to unsecured creditors
If proceeds are less than 1,2 and 3, then creditor can sue debtor for shortage or deficiency plus attorney fees