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1 Secured Transactions Assignment 28 Lienors vs. Secureds: The Basics.

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Presentation on theme: "1 Secured Transactions Assignment 28 Lienors vs. Secureds: The Basics."— Presentation transcript:

1 1 Secured Transactions Assignment 28 Lienors vs. Secureds: The Basics

2 2 The Big Picture Part Two: The Creditor Third Party Relationship Chapter 6-7: Perfection Chapter 8: The Concept of Priority Chapter 9: Competitions for Collateral Assignment 28: Lien Creditors vs Secureds: The Basics Assignment 29: Lien Creditors vs Secured: Future Advances Assignment 30: Trustees vs Secureds: The Strong Arm Assignment 31: Trustees vs Secureds: Preferences Assignment 32: Secureds vs. Secureds: Basics Assignment 33: Secureds vs. Secureds: Land and Fixtures

3 3 The Big Picture Part Two: The Creditor Third Party Relationship Chapter 6-7: Perfection Chapter 8: The Concept of Priority Chapter 9: Competitions for Collateral Assignment 28: Lien Creditors vs. Secureds: The Basics Assignment 29: Lien Creditors vs. Secured: Future Advances Assignment 31: Preferences Assignment 32: Secured Creditors vs. Secured Creditors Assignment 36: Buyers vs. Secured Creditors Land, Fixtures, Agriculture, and Minerals

4 4 §9-102(a)(52). “Lien creditor” means... a creditor that has acquired a lien on the property involved by attachment, levy, or the like.... §9-102(a)(72). “Secured party” means... a person in whose favor a security interest is created... under a security agreement. (Excludes mortgages) Security interests are contractual; liens are judicial. The categories are mutually exclusive. Article 9 Terminology Security interest Lien

5 5 §9-102(a)(52). “Lien creditor” means... a creditor that has acquired a lien on the property involved by attachment, levy, or the like.... §9-102(a)(72). “Secured party” means... a person in whose favor a security interest is created... under a security agreement. (Excludes mortgages) Security interests are contractual; liens are judicial. The categories are mutually exclusive. Article 9 Terminology Mortgage Security interest Lien Statutory lien

6 Lien 6 §101(51): Security interest means a lien created by agreement. (Includes mortgages) §101 (36): Judicial lien means lien obtained by judgment, levy, sequestration, or other legal or equitable process... §101(53): Statutory lien means a lien arising by statute, but does not include security interest or judicial lien §101(37) Lien means charge against property to secure payment Bankruptcy and Tax Code Terminology Security interest Judicial Lien Mortgage Article 9 security interest Statutory Lien Lien

7 7 The Priority Rules The system of priority is basically “first in time, first in right.”

8 8 Question: Precisely what must a creditor do first to be first? The Priority Rules

9 9 The system of priority is basically “first in time, first in right.” Question: Precisely what must a creditor do first to be first? Answer up until now: perfect The Priority Rules

10 10 The system of priority is basically “first in time, first in right.” Question: Precisely what must a creditor do first to be first? Answer up until now: perfect Answer now: the act specified by the rule governing that priority contest The Priority Rules

11 Questions about applicable law 1. Distribution of foreclosure sale proceeds: Sale under an Article 9 security interest: 9-615(a) Sale under an execution lien: State execution statute, NY 5263(g) page 437 Sale under a real estate mortgage: state mortgage foreclosure law. But they all yield the same result. 2. Right to stop the sale. Probably don’t all yield the same result Second execution joins first execution sale Real estate foreclosures race 11

12 12 The system of priority is basically “first in time, first in right.” Question: Precisely what must a creditor do first to be first? Competitors:Security interest§9-322(a)Security interest Priority date and time: The earlier of perfection or filing (perfection is the last of three attachment requirements and the perfection requirement) The earlier of: perfection or filing (perfection is the last of three attachment requirements and the perfection requirement) The Priority Rules

13 13 The system of priority is basically “first in time, first in right.” Question: Precisely what must a creditor do first to be first? Competitors:Security interest§9-322(a)Security interest Priority date and time: The earlier of perfection or filing (perfection is the last of three attachment requirements and the perfection requirement) The earlier of: perfection or filing (perfection is the last of three attachment requirements and the perfection requirement) The Priority Rules

14 14 The system of priority is basically “first in time, first in right.” Question: Precisely what must a creditor do first to be first? Competitors:Lien creditor§9-317(a)Security interest Priority date and time: “becomes a lien creditor” (majority rule: levy; minority rules: deliver writ to sheriff or file judgment in UCC) The earlier of (A) perfection or (B) filing and “one of the §9-203(b)(3) conditions is met” The Priority Rules

15 15 The system of priority is basically “first in time, first in right.” Question: Precisely what must a creditor do first to be first? Competitors:Lien creditor§9-317(a)Security interest Priority date and time: “becomes a lien creditor” (majority rule: levy; minority rules: deliver writ to sheriff or file judgment in UCC) The earlier of (A) perfection or (B) filing and “one of the §9-203(b)(3) conditions is met” The Priority Rules

16 16 The system of priority is basically “first in time, first in right.” Question: Precisely what must a creditor do first to be first? Competitors:Lien creditor§9-317(a)Security interest Priority date and time: “becomes a lien creditor” (majority rule: levy; minority rules: deliver writ to sheriff or file judgment in UCC) The earlier of (A) perfection or (B) filing and “one of the §9-203(b)(3) conditions is met” The Priority Rules

17 17 The system of priority is basically “first in time, first in right.” Question: Precisely what must a creditor do first to be first? Competitors:Lien creditor§9-317(a)Security interest Priority date and time: Majority rule: levy; minority rules: deliver writ to sheriff or file judgment in UCC The earlier of (A) perfection or (B) filing and “one of the §9-203(b)(3) conditions is met” The Priority Rules

18 18 The system of priority is basically “first in time, first in right.” Question: Precisely what must a creditor do first to be first? Competitors:Lien creditorState lawLien creditor Priority date and time: Majority rule: levy; minority rules: deliver writ to sheriff or file judgment in UCC The Priority Rules

19 19 The system of priority is basically “first in time, first in right.” Question: Precisely what must a creditor do first to be first? Competitors:Lien creditor§9-317(e)PMSI Priority date and time: Majority rule: levy; minority rules: deliver writ to sheriff or file judgment in UCC Attach, provided a financing statement is filed “within 20 days after” delivery The Priority Rules

20 20 The system of priority is basically “first in time, first in right.” Question: Precisely what must a creditor do first to be first? Competitors:Lien creditor§9-317(e)PMSI Priority date and time: Majority rule: levy; minority rules: deliver writ to sheriff or file judgment in UCC Attachment, provided a financing statement is filed “within 20 days after” delivery The Priority Rules

21 21 Purchase money priority PMSI §9-317(e). [I]f a person files a financing statement with respect to a purchase money security interest File Lien

22 22 Purchase money priority PMSI Delivery 20 day grace §9-317(e). [I]f a person files a financing statement with respect to a purchase money security interest before or within 20 days after... delivery of the collateral File Lien

23 23 Purchase money priority PMSI Lien Delivery Levy 20 day grace §9-317(e). [I]f a person files a financing statement with respect to a purchase money security interest before or within 20 days after... delivery of the collateral, the security interest takes priority over the rights of a... lien creditor File

24 24 Purchase money priority PMSI Lien Delivery Levy File 20 day grace §9-317(e). [I]f a person files a financing statement with respect to a purchase money security interest before or within 20 days after... delivery of the collateral, the security interest takes priority over the rights of a... lien creditor which arise between [attachment and] filing. Attachment

25 25 Problem 28.1.a, page 477 Mortgage Judgment Mortgage granted Levy Mortgage recorded

26 26 Problem 28.1.a, page 477 Mortgage Judgment Mortgage granted Who has priority? Levy Mortgage recorded

27 27 Problem 28.1.a, page 477 Mortgage Judgment Mortgage granted Who has priority? Mortgage in a majority of states. First created, subject to the recording statute. Judgments are not protected under most recording acts. Levy Mortgage recorded

28 28 Problem 28.1.a, page 477 Mortgage Judgment Mortgage granted Who has priority? Mortgage in a majority of states. First created, subject to the recording statute. Judgments are not protected under most recording acts. Levy Mortgage recorded Security Interest Judgment Attachment Levy Filing

29 29 Problem 28.1.a, page 477 Mortgage Judgment Mortgage granted Who has priority? Mortgage in a majority of states. First created, subject to the recording statute. Judgments are not protected under most recording acts. Levy Mortgage recorded Security Interest Judgment Attachment Levy Filing Who has priority? Judgment. §9-317(a).

30 30 Problem 28.1.a, page 477 Mortgage Judgment Mortgage granted Who has priority? Mortgage in a majority of states. First created, subject to the recording statute. Judgments are not protected under most recording acts. Levy Mortgage recorded Security Interest Judgment Attachment Levy Filing Who has priority? Judgment. §9-317(a).

31 31 Problem 28.2, page 477 Phyllis 3/7 Financing statement filed Security agreement Note Search

32 32 Problem 28.2, page 477 Phyllis Star Levy 3/7 3/10 Financing statement filed Security agreement Note Search

33 33 Problem 28.2, page 477 Phyllis Star Levy 3/7 3/10 Search report 3/11 Financing statement filed Security agreement Note Search

34 34 Problem 28.2, page 477 Phyllis Star Levy 3/7 3/10 Search report 3/11 Now Financing statement filed Security agreement Note Search

35 35 Problem 28.2, page 477 Phyllis Star Financing statement filed Security agreement Note Search a.Is Phyllis perfected? Levy 3/7 3/10 Search report 3/11 Now

36 36 Problem 28.2, page 477 Phyllis Star a.Is Phyllis perfected? Depends on whether value has been given Levy 3/7 3/10 Search report 3/11 Now Financing statement filed Security agreement Note Search

37 37 Problem 28.2, page 477 Phyllis Star a.Is Phyllis perfected? Depends on whether value has been given b.If Phyllis disburses, does she have priority over Star? Levy 3/7 3/10 Search report Phyllis lends 3/11 Financing statement filed Security agreement Note Search

38 38 Problem 28.2, page 477 Phyllis Star a.Is Phyllis perfected? Depends on whether value has been given b.If Phyllis disburses, does she have priority over Star? §9-317(a)(2). A security interest... is subordinate to... a person that becomes a lien creditor before the earlier of the time (A) the security interest... is perfected; or (B) one of the conditions in §9-203(b)(3) is met and a financing statement... is filed. Levy 3/7 3/10 Search report Phyllis lends 3/11 Financing statement filed Security agreement Note Search

39 39 Financing statement filed Security agreement Note Search Problem 28.2, page 477 Phyllis Star a.Is Phyllis perfected? Depends on whether value has been given b.If Phyllis disburses, does she have priority over Star? Yes. §9-317(a)(2). A security interest... is subordinate to... a person that becomes a lien creditor before the earlier of the time (A) the security interest... is perfected; or (B) one of the conditions in §9-203(b)(3) is met and a financing statement... is filed. Levy 3/7 3/10 Search report Phyllis lends 3/11

40 40 Problem 28.3, page 478 Sheng Judgment entered Levy? RFT

41 41 Problem 28.3, page 478 Sheng RFT Judgment entered Levy? Now How could RFT get priority over Sheng?

42 42 Problem 28.3, page 478 Sheng RFT Judgment entered Levy? RFT perfects How could RFT get priority over Sheng? How could RFT get a security interest?

43 43 Problem 28.3, page 478 Sheng RFT Judgment entered Levy? RFT perfects How could RFT get priority over Sheng? How could RFT get a security interest? Why would Conda Copper grant it?

44 44 Problem 28.3, page 478 Sheng RFT Judgment entered How could RFT get priority over Sheng? How could RFT get a security interest? Why would Conda Copper grant it? Spite? Gratitude? Money? Grocer’s Supply protection? Levy? RFT perfects

45 45 Problem 28.3, page 478 Sheng RFT Judgment entered How could RFT get priority over Sheng? How could RFT get a security interest? Why would Conda Copper grant it? Spite? Gratitude? Money? Grocer’s Supply protection? What if Conda Copper authorized a financing statement but not a security agreement? Levy? RFT files

46 46 Problem 28.3, page 478 Sheng RFT Judgment entered How could RFT get priority over Sheng? How could RFT get a security interest? Why would Conda Copper grant it? Spite? Gratitude? Money? Grocer’s Supply protection? What if Conda Copper authorized a financing statement but not a security agreement? Not enough. §9-317(a)(2). Levy? RFT files

47 47 Problem 28.3, page 478 Sheng RFT Judgment entered How could RFT get priority over Sheng? How could RFT get a security interest? Why would Conda Copper grant it? Spite? Gratitude? Money? Grocer’s Supply protection? Points: 1.Secured creditor can establish rights faster than unsecured 2.Debtor can “auction” priority among the unsecureds. Levy? RFT perfects

48 48 Problem 28.4, page 478 National Search report View collateral Close loan Security agreement Financing statement Execution creditor

49 49 Problem 28.4, page 478 Rule: “becomes a lien creditor at levy.” Search report View collateral National Close loan Security agreement Financing statement Execution creditor

50 50 Problem 28.4, page 478 Rule: “becomes a lien creditor at levy.” 9-317(a)(2). A security interest... is subordinate to... a person that becomes a lien creditor before the earlier of the time (A) the security interest... is perfected; or (B) one of the conditions in §9-203(b)(3) is met and a financing statement... is filed. Search report View collateral National Close loan Security agreement Financing statement Execution creditor

51 51 Problem 28.4, page 478 Rule: “becomes a lien creditor at levy.” 9-317(a)(2). A security interest... is subordinate to... a person that [levies] before the earlier of the time (A) the security interest... is perfected; or (B) one of the conditions in §9-203(b)(3) is met and a financing statement... is filed. Search report View collateral National Close loan Security agreement Financing statement Execution creditor

52 52 Problem 28.4, page 478 Execution creditor Rule: “becomes a lien creditor at levy.” 9-317(a)(2). A security interest... is subordinate to... a person that [levies] before the earlier of the time (A) the security interest... is perfected; or (B) one of the conditions in §9-203(b)(3) is met and a financing statement... is filed. Levy 2 Levy 1 Search report View collateral National Close loan Security agreement Financing statement

53 53 Problem 28.4, page 478 Execution creditor Rule: “becomes a lien creditor at levy.” 9-317(a)(2). A security interest... is subordinate to... a person that [levies] before the earlier of the time (A) the security interest... is perfected; or (B) one of the conditions in §9-203(b)(3) is met and a financing statement... is filed. Levy 2 Levy 1 Search report View collateral Does this system beat the levies? National Close loan Security agreement Financing statement

54 54 Problem 28.4, page 478 Execution creditor Rule: “becomes a lien creditor at levy.” 9-317(a)(2). A security interest... is subordinate to... a person that [levies] before the earlier of the time (A) the security interest... is perfected; or (B) one of the conditions in §9-203(b)(3) is met and a financing statement... is filed. Levy 2 Search report View collateral Levy 1 Does this system beat the levies? Only if SA is signed before viewing the collateral National Close loan Security agreement Financing statement

55 55 Problem 28.4, page 472 Rule: “becomes a lien creditor at levy or filing” 9-317(a)(2). A security interest... is subordinate to... a person that becomes a lien creditor before the earlier of the time (A) the security interest... is perfected; or (B) one of the conditions in §9-203(b)(3) is met and a financing statement... is filed. Levy 2 or Filing 2 Search report View collateral National Close loan Levy 1 or Filing 1 Security agreement Financing statement Execution creditor

56 56 Problem 28.4, page 472 Rule: “becomes a lien creditor at levy or filing” 9-317(a)(2). A security interest... is subordinate to... a person that [levies or files] before the earlier of the time (A) the security interest... is perfected; or (B) one of the conditions in §9-203(b)(3) is met and a financing statement... is filed. Levy 2 or Filing 2 Search report View collateral National Close loan Levy 1 or Filing 1 Security agreement Financing statement Execution creditor

57 57 Problem 28.4, page 472 Rule: “becomes a lien creditor at levy or filing” 9-317(a)(2). A security interest... is subordinate to... a person that [levies or files] before the earlier of the time (A) the security interest... is perfected; or (B) one of the conditions in §9-203(b)(3) is met and a financing statement... is filed. Levy 2 or Filing 2 Search report View collateral National Close loan Levy 1 or Filing 1 Does this system beat the levies and filings? Security agreement Financing statement Execution creditor

58 58 Problem 28.4, page 472 Rule: “becomes a lien creditor at levy or filing” 9-317(a)(2). A security interest... is subordinate to... a person that [levies or files] before the earlier of the time (A) the security interest... is perfected; or (B) one of the conditions in §9-203(b)(3) is met and a financing statement... is filed. Levy 2 or Filing 2 Levy 1 or Filing 1 Does this system beat the levies and filings? Yes. If Security Agreement signed before filing. Search report View collateral National Close loan Security agreement Financing statement Execution creditor

59 59 Purchase money priority PMSI §9-317(e). [I]f a person files a financing statement with respect to a purchase money security interest File Lien (or buyer)

60 60 Purchase money priority PMSI Delivery 20 day grace §9-317(e). [I]f a person files a financing statement with respect to a purchase money security interest before or within 20 days after... delivery of the collateral File Lien (or buyer)

61 61 Purchase money priority PMSI Delivery Levy 20 day grace §9-317(e). [I]f a person files a financing statement with respect to a purchase money security interest before or within 20 days after... delivery of the collateral, the security interest takes priority over the rights of a... lien creditor File Lien (or buyer)

62 62 Purchase money priority PMSI Lien (or buyer) Delivery Levy File 20 day grace §9-317(e). [I]f a person files a financing statement with respect to a purchase money security interest before or within 20 days after... delivery of the collateral, the security interest takes priority over the rights of a... lien creditor which arise between [attachment and] filing. Attachment

63 63 Problem 28.5, page 478 Orville Judgment

64 Financing statement, not filed Security agreement Delivery Note 64 Problem 28.5, page 478 BBW Orville Judgment

65 65 Problem 28.5, page 478 BBW Orville LevyJudgment Financing statement, not filed Security agreement Delivery Note

66 66 Problem 28.5, page 478 BBW Orville a.Can BBW get the boat back from the sheriff right now? LevyJudgment Financing statement, not filed Security agreement Delivery Note

67 67 Problem 28.5, page 478 BBW Orville a.Can BBW get the boat back from the sheriff right now? Yes, if boat is consumer goods. BBW is prior perfected secured creditor, entitled to possession under Grocers Supply LevyJudgment Financing statement, not filed Security agreement Delivery Note

68 68 Problem 28.5, page 478 BBW Orville a.Can BBW get the boat back from the sheriff right now? Yes, if boat is consumer goods. BBW is prior perfected secured creditor, entitled to possession under Grocers Supply No, if boat is not consumer goods. BBW is unperfected. LevyJudgment Financing statement, not filed Security agreement Delivery Note

69 69 Problem 28.5, page 478 BBW Orville a.Can BBW get the boat back from the sheriff right now? Yes, if boat is consumer goods. BBW is prior perfected secured creditor, entitled to possession under Grocers Supply No, if boat is not consumer goods. BBW is unperfected. b. Is there anything BBW should do if it is unperfected? LevyJudgment Financing statement, not filed Security agreement Delivery Note

70 70 Problem 28.5, page 478 BBW Orville Delivery Attachment a.Can BBW get the boat back from the sheriff right now? Yes, if boat is consumer goods. BBW is prior perfected secured creditor, entitled to possession under Grocers Supply No, if boat is not consumer goods. BBW is unperfected. b. Is there anything BBW should do if it is unperfected? File the financing statement to obtain §9-317(e) priority LevyJudgment File 20 day grace

71 71 Problem 28.5, page 478 BBW Orville Delivery Attachment a.Can BBW get the boat back from the sheriff right now? Yes, if boat is consumer goods. BBW is prior perfected secured creditor, entitled to possession under Grocers Supply No, if boat is not consumer goods. BBW is unperfected. b. Is there anything BBW should do if it is unperfected? File the financing statement to obtain §9-317(e) priority LevyJudgment File 20 day grace

72 72 Problem 28.5, page 478 BBW Orville a.Can BBW get the boat back from the sheriff right now? Yes, if boat is consumer goods. BBW is prior perfected secured creditor, entitled to possession under Grocers Supply No, if boat is not consumer goods. BBW is unperfected. b. Is there anything BBW should do if it is unperfected? File the financing statement to obtain §9-317(e) priority Demand possession from sheriff LevyJudgment File Demand possession Financing statement, not filed Security agreement Sale Note

73 73 Financing statement, not filed Security agreement, not signed Sale Note Problem 28.6, page 479 BBW Orville LevyJudgment Edith did not sign the security agreement.

74 74 Now Problem 28.6, page 479 BBW Orville Financing statement, not filed Security agreement, not signed Sale Note LevyJudgment Edith did not sign the security agreement. Now where do we stand?

75 75 Problem 28.6, page 479 BBW Orville Financing statement, not filed Security agreement, not signed Sale Note LevyJudgment Edith did not sign the security agreement. Now where do we stand? No attachment, so unsecured. Now

76 76 Problem 28.6, page 479 BBW Orville Financing statement, not filed Security agreement, not signed Sale Note LevyJudgment Edith did not sign the security agreement. Now where do we stand? No attachment, so unsecured. Should we get Edith’s signature now? Now

77 77 Problem 28.6, page 479 BBW Orville Delivery Edith did not sign the security agreement. Now where do we stand? No attachment, so unsecured. Should we get Edith’s signature now? Yes, but too late for purchase money priority. §9-317(e). [I]f a person files a financing statement with respect to a purchase money security interest before or within 20 days after... delivery of the collateral, the security interest takes priority over the rights of a... lien creditor which arise between [attachment and] filing. LevyJudgment File 20 day grace Attachment

78 78 Problem 28.6, page 479 BBW Orville Delivery Edith did not sign the security agreement. Now where do we stand? No attachment, so unsecured. Should we get Edith’s signature now? Yes, but too late for purchase money priority. §9-317(e). [I]f a person files a financing statement with respect to a purchase money security interest before or within 20 days after... delivery of the collateral, the security interest takes priority over the rights of a... lien creditor which arise between [attachment and] filing. LevyJudgment File 20 day grace Attachment

79 79 Problem 28.6, page 479 BBW Orville Delivery Edith did not sign the security agreement. Now where do we stand? No attachment, so unsecured. Should we get Edith’s signature now? Yes, but too late for purchase money priority. §9-317(e). [I]f a person files a financing statement with respect to a purchase money security interest before or within 20 days after... delivery of the collateral, the security interest takes priority over the rights of a... lien creditor which arise between [attachment and] filing. LevyJudgment File 20 day grace Attachment How about waiving the paper without saying when signed?

80 80 Problem 28.6, page 479 BBW Orville Delivery Edith did not sign the security agreement. Now where do we stand? No attachment, so unsecured. Should we get Edith’s signature now? Yes, but too late for purchase money priority. Would a well-advised Edith sign? §9-317(e). [I]f a person files a financing statement with respect to a purchase money security interest before or within 20 days after... delivery of the collateral, the security interest takes priority over the rights of a... lien creditor which arise between [attachment and] filing. LevyJudgment File 20 day grace Attachment How about waiving the paper without saying when signed?


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