Secured Transactions Outline - Secured Transactions (Article 9)

Secured Transactions Outline

FOR THE PURPOSES OF THIS OUTLINE THE DEFINITIONS AND ABBREVIATIONS ARE AS FOLLOWS:

“SI” security Interest

“SP” Secured Party

“GFPV” Good faith purchaser for value

Obligor- debtor the one who took out the debt (person who owes the obligation)

Obligee- creditor, who is owed the money (person to whom the obligation is owed)

“dunning” persistent attempt to collect a debt

“set off” both parties have debt to each other

“mature” it is due and owed

“mutual” owed in the same capacity

Bankruptcy

Chapter 7 Liquidation- individual and business

Trustee appointed to sell property, manage debt pay off

Chapter 11- Individual and Corporate Reorganization

Trustee appointed, plan of reorganization, court confirms plan, trustee sees plan out

Chapter 13- Individual Reorganization

Trustee appointed (sometimes), plan of reorganization presented, CREDITORS vote on plan, court approves plan, payments occur

What is credit?

Credit is a contractual agreement where a borrower or a buyer receives something of value (money or resources) and agrees to pay the Lender or Seller later.

A secured transactions is: (agreement)

An agreement where a buyers or borrower grants a security interest in property (collateral) to a seller or lender, to guarantee payment of an underlying obligation to be paid LATER

These promote borrowing and buying

It is backed by personal property to cover the obligation in event of default

Two types of secured credit:

1. A seller extends credit to a buyer to purchase property from the seller and pay the seller later, with the seller taking a security interest in the property sold

2. A lender extends credit to a borrower, loaning money to the borrower for a variety of reasons, with the borrower agreeing to pay the lender later and securing the promise of future payment with the borrower’s property.

What is unsecured credit?

Credit extended where no property is pledged by the obligor to cover the obligation until paid in full (credit card, medical services, student loans)

In personam relief- obligor can sue personally for payment

Three advantages to a secured transaction-

1. In Rem Relief- Obligee has personal property to satisfy the obligation

Relief against the THING, purchase car from Baker Motors, purchase car (car is the rem) personal obligation/ debt (personam) (Rem is against the thing, Personam against the personal obligation)

2. Collection of the obligation by obligee is easier- compared to an unsecured obligation and its complications

Think about dentist example and how long it took to get paid, (sheriff, resell, writ) (has to foreclose on the property, if property is in another jurisdiction have it transferred, LONG PROCESS TO GET PAID)

May immediately repossess collateral granted and sell it

3. Priority advantage for the obligee- who is the first in time to properly record the security interest INCLUDING notice, check to see if a security interest is in the property before claiming a new one

4. If security interest that consented and pledged collateral, exemptions DO NOT MATTER (so if the van was pledged as collateral, then it does NOT matter if it was 5,000 vehicle exemption, etc)

Attachment- how a lender can create enforceable security interest (3 steps to attach)

Perfection- put the rest of the world on notice of the security interest (2 steps to perfect)

Priority- who gets the personal property when there are multiple parties involved

Nine Step Classification- end goal, who has priority to piece of property

Who are the parties?

Debtor §9-102(a)(28)

Person who has an interest in the personal property or fixture that acts as collateral

Secured Party (the beneficiary) §9-102(a)(73)

Person in whose favor the security interest is created, a person who holds an agricultural lien, certain cosigners, certain lessors and a person who buys accounts, chattel paper, and promissory notes

Collateral §9-102(a)(12)

The property or fixture subject to the security interest and more

Obligor

Person who is responsible for the underlying OBLIGATION whether monetary or non-monetary (NOT ALWAYs the debtor)

Security interest §1-201(b)(35)

Generally, an interest in personal property or fixtures which secures payment of an obligation or performance of a service until the obligation is paid in full or the performance is completed

Step 1- Identify the personal property AT ISSUE

To know what personal property they have, you need to see it

Know who the debtor is, their interest in the property

How the debtor uses the property

Can be goods, intangibles or quasi-intangibles

1. Can the party pledge the interest?

2. To what extent do they own the property?

3. What is the value of the debtors interest in this property?

4. Will the value of the property cover the obligation of the loan over its life?

5. Should the secured party take several TYPES of property?

Step 2- Classify the personal property- from debtors perspective

Can classify as UCC Types or individual items

Need sufficient description of the collateral- types can be sufficient

“existing and after acquired”- includes all current and future

• Goods (moveable at the of identification to the contract) (good can transform types- dairy)

  • Inventory- stuff being sold, leased or used up in the business

  • Equipment- default category, rule all other goods out first, vehicles, tools, etc

  • farm products- goods in “farming operation” used to harvest or animals

  • consumer goods- household or family purposes

• Intangibles

  • Deposit Account- means a demand, time, savings, passbook, or similar, account maintained with a bank. The term does not include investment property or accounts evidenced by an instrument.

  • Accounts (riskiest)-

  • Investment Property

    • Certified Security (electronic)

    • Uncertified Security

    • Commodity Account- means an account maintained by a commodity intermediary in which a commodity contract is carried for a commodity customer

    • Securities Account

  • General Intangibles- means any personal property, including things in action, other than...