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Credit Instruments and Legal Documentation. CONTRACTS u FOUR ESSENTIAL ELEMENTS: v PARTIES TO A CONTRACT MUST BE LEGALLY COMPETENT v SUBJECT MATTER MUST.

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Presentation on theme: "Credit Instruments and Legal Documentation. CONTRACTS u FOUR ESSENTIAL ELEMENTS: v PARTIES TO A CONTRACT MUST BE LEGALLY COMPETENT v SUBJECT MATTER MUST."— Presentation transcript:

1 Credit Instruments and Legal Documentation

2 CONTRACTS u FOUR ESSENTIAL ELEMENTS: v PARTIES TO A CONTRACT MUST BE LEGALLY COMPETENT v SUBJECT MATTER MUST BE LEGAL AND PROPER v MUST BE EVIDENCE OF AN OFFER AND AN ACCEPTANCE v MUST BE CONSIDERATION

3 PROMISSORY NOTE u THE PRIMARY LEGAL DOCUMENT IN A LOAN CONTRACT u A WRITTEN PROMISE OF THE BORROWER TO REPAY A LOAN

4 u NOTES CAN BE SECURED OR UNSECURED u THE PURPOSE OF SECURITY OR COLLATERAL IS TO REDUCE THE DEFAULT RISK

5 REAL PROPERTY u THE DEED OF TRUST IS THE INSTRUMENT USED TO ESTABLISH A SECURITY INTEREST IN REAL PROPERTY u IT IS A THREE PARTY INSTRUMENT v LENDER v BORROWER v TRUSTEE

6 WARRANTY DEED u THE INSTRUMENT THAT TRANSFERS TITLE IN REAL PROPERTY u THE SELLER IS GUARANTEEING THAT THE TITLE IS FREE AND CLEAR OF ENCUMBRANCES

7 QUITCLAIM DEED u THE SELLER IS AGREEING ONLY TO CONVEY ANY INTEREST IN THE PROPERTY, BUT NOT GUARANTEEING THAT THE PROPERTY IS FREE OF ENCUMBRANCES BY OTHERS

8 UNIFORM COMMERCIAL CODE (UCC) u ALL LAWS THAT GOVERN TANGIBLE AND INTANGIBLE PERSONAL PROPERTY u TANGIBLE PERSONAL PROPERTY v CONSUMER GOODS v EQUIPMENT v FARM PRODUCTS

9 u INTANGIBLE PERSONAL PROPERTY v NEGOTIABLE INSTRUMENTS v DOCUMENTS OF TITLE v ACCOUNTS v CONTRACT RIGHTS

10 u UNDER THE UCC THE PARTIES IN A SECURED TRANSACTION ARE THE DEBTOR (BORROWER) AND THE SECURED PARTY (LENDER OR SECURED SELLER)

11 u THE SECURED PARTY OBTAINS A SECURITY INTEREST (LIEN) IN COLLATERAL (PERSONAL PROPERTY GIVEN AS SECURITY) BY ENTERING INTO A SECURITY AGREEMENT (CREATES A SECURITY INTEREST)

12 FINANCING STATEMENT u SHOWS THE NAME AND MAILING ADDRESS OF THE BORROWER AND SECURED PARTY AND A DESCRIPTION OF THE COLLATERAL AND MUST BE SIGNED BY BOTH PARTIES.

13 OTHER CREDIT INSTRUMENTS u ABSTRACT - ALL DEEDS, MORTGAGES, FORECLOSURES, AND OTHER PERTINENT FACTS THAT AFFECT TITLE TO LAND. u TITLE INSURANCE - USED IN PLACE OF AN ABSTRACT.

14 u A LIEN IS A CLAIM OR ENCUMBRANCE ON A PROPERTY. u FORECLOSURE IS THE PROCESS UNDER WHICH LENDERS EXERCISE THEIR RIGHTS TO HAVE SECURITY SOLD AND THE PROCEEDS APPLIED TO THE OUTSTANDING LOAN BALANCE.

15 BANKRUPTCY u CHAPTER 7 PROVIDES FOR LIQUIDATION OF ASSETS FOR THE SATISFACTION OF LEGALLY DISCHARGEABLE DEBTS u CHAPTER 12 FOR FARMERS ONLY, ALLOWS REORGANIZATION OF THE BUSINESS TO MEET DEBT

16 u CHAPTER 11 ALLOWS DEBT ADJUSTMENT AND REORGANIZATION AND IS COMMONLY USED FOR BUSINESS REORGANIZATION u CHAPTER 13 INVOLVES REORGANIZATION OR ADJUSTMENT OF DEBTS OF AN INDIVIDUAL WITH REGULAR INCOME.

17 CHAPTER 12 BANKRUPTCY u ENACTED IN 1986 IN RESPONSE TO THE FARM FINANCIAL CRISIS OF THE 1980s u MODIFIES THE NORMAL CHAPTER 11 PROCEDURE BY PERMITTING FARMERS TO SUBMIT A REORGANIZATION PLAN DIRECTLY TO THE BANKRUPTCY COURT, WITH NO REVIEW BY CREDITORS.

18 u GIVES FARMERS CONSIDERABLE POWER TO DEMAND CONCESSIONS FROM LENDERS RELATIVE TO CHAPTER 11


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