Purchase Money Security Interest Inventory

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					Secured Transactions


Security Inte rest:   An interest in personal property or fixtures that secures payment or
                      performance of an obligation. May be either possessory or non

Attachme nt:          When interest is effective between debtor and creditor

Perfection:           Additional step taken to give creditor priority over certain other
                      creditors and most third parties.

Purchase Money Security Interest – Security interest in which the collateral is property
                                purchased with credit issued or money lent to make
                                the purchase.

Two kinds of secured Transactions

                      Secured Credit Sale – A sales transaction in which the creditor is
                      involved as a seller of goods sold on credit and takes a purchase
                      money security interest in the goods sold.

                      Secured Loan Transaction – No sale involved. Creditor lends
                      money and takes a security interest in collateral pledged by the

Attachme nt

Attachment occurs when the following three events are completed:

                      1. Secured party has collateral pursuant to an agreement with the
                         debtor, or debtor has signed a security agreement describing

                      2. Creditor gives value.

                      3. Debtor has property rights in collateral.

Perfection occurs when:

                       1.    financing statement has been filed with the appropriate public

                               a. Financing statement varies from state to state.
                               b. Must include the names and addresses of the parties;
                                  listing or description of the collateral and the signature
                                  of the debtor.

                       2. Purchase money security interest in consumer goods is
                          perfected at time of attachment. However, it is not effective
                          against a good faith purchaser from the debtor.

                       3. Debtor takes possession of the collateral according to an
                          agreement with the creditor.

Types of Collateral:

       1. Goods
              a. Consumer goods – used or bought primarily for personal family or
                                  household use.

              b. Inventory – goods held for sale or lease, including raw materials
                             work- in-process. One holding a security interest in
                             inventory has a “floating lien” on inventory since inventory
                             changes as sales are made and inventory is replaced.

              c.Equipment – goods used in a business. (“floating lien”)

       2. Negotiable Instruments

       3. Intangibles such as accounts receivable.

Priority of Security Interests

       a. Non-perfected interests take priority by date of attachment.
       b. Perfected security interests take priority by date of perfection.
       c. Perfected interests take priority over non perfected interests.
Exceptions to priority involving purchase money security interest (PMSI)

       a. Purchase money security interest in non- inventory goods takes priority on date
       of attachment if perfected within 10/20 day of attachment. If not filed within
       applicable time limit interest takes priority from date of perfection.

       b. Purchase money security interest in inventory has priority over conflicting
       security interests if (a) the holder of the PMSI perfected the security interest on or
       before the date the debtor receives the inventory and notifies the holders of the
       conflicting interests prior to debtor taking possession.

Inte rstate movement of collate ral

Intrastate change in the location of collateral does not affect the validity of the filing
according to the majority rule. If property in moved to another state original filing is valid
until it would have originally expired or four months, whichever occurs first.


Upon default secured party may peacefully repossess the goods without judicial process,
reduce the claim to a judgment, or the goods and apply the proceeds to the debt. If sale
does not generate sufficient funds to pay debt in full the debtor continues to owe the
deficit. If the sale generates funds in excess of the outstanding debt the excess is returned
to the debtor.

After default the debtor has the right to redeem the collateral prior to its disposition by
paying total amount due and expenses incurred by creditor in repossession.

Creditor may retain the goods. To do so creditor must notify the debtor and others
holding security interests in the collateral. If no objections are received within 21 days
the property may be retained. If objection is received property must be sold. If property is
retained by creditor the debt is extinguished.

After property is sold debtor has no right to redeem it from a good faith purchaser.

Description: Purchase Money Security Interest Inventory document sample