Key Terms and Concepts in Secured Transactions

Secured Transaction

A transaction in which a debtor grants a security interest in personal property to secure payment or performance of an obligation.

Security Interest

A legal interest in collateral that secures payment or performance of an obligation.

Secured Party

The creditor or lender who holds the security interest.

Debtor

The person or entity that owes payment or performance of the obligation secured by the collateral.

Collateral

The property subject to a security interest.

Attachment

The process by which a security interest becomes enforceable against the debtor.

Perfection

The process of making a security interest enforceable against third parties, typically by filing a financing statement or taking possession of the collateral.

Financing Statement (UCC-1)

A document filed to perfect a security interest, providing public notice of the secured party's claim.

Priority

The rules determining which creditor has the superior claim to the collateral when multiple parties have interests.

Purchase Money Security Interest (PMSI)

A special type of security interest that arises when a creditor provides financing for the purchase of the collateral.

After-Acquired Property Clause

A provision in a security agreement that allows the secured party to claim a security interest in property the debtor acquires after the agreement is executed.

Proceeds

Whatever is received upon the sale, exchange, or other disposition of collateral.

Default

The debtor's failure to fulfill their obligations under the secured transaction, triggering the secured party's remedies.

Repossession

The secured party's right to take possession of the collateral upon default, without breaching the peace.

Disposition of Collateral

The secured party's right to sell, lease, or otherwise dispose of the collateral after default, provided it is done in a commercially reasonable manner.

Deficiency Judgment

A judgment against the debtor for the remaining balance owed after the collateral is sold and the proceeds are insufficient to satisfy the debt.

Redemption

The debtor's right to pay off the debt and reclaim the collateral before it is sold or disposed of by the secured party.

Consumer Goods

Goods used primarily for personal, family, or household purposes.

Inventory

Goods held for sale or lease in the ordinary course of business.

Equipment

Goods used in business that are not inventory or consumer goods.

Farm Products

Crops, livestock, or supplies used in farming operations.

Accounts

Rights to payment for goods sold or services rendered.

Chattel Paper

A record evidencing both a monetary obligation and a security interest in goods.

Deposit Accounts

Bank accounts, which are only perfected by control in non-consumer transactions.

General Intangibles

Intellectual property, goodwill, and other intangible assets.

Investment Property

Stocks, bonds, and other securities.

Fixtures

Goods that are attached to real property but retain their identity as personal property.

Automatic Perfection

PMSIs in consumer goods are automatically perfected upon attachment.

Buyer in Ordinary Course of Business (BIOC)

A buyer who purchases goods in good faith, without knowledge of a security interest, takes free of the security interest created by the seller.

Future Advances

A security interest can secure future loans or obligations if the security agreement includes a future advances clause.

Cross-Collateralization

A security interest in one loan can secure obligations under another loan if the agreement allows it.

Strict Foreclosure

The secured party may retain the collateral in satisfaction of the debt if the debtor consents and no objections are raised by other parties.