What are proceeds in secured transactions?
“Proceeds” is defined as whatever is acquired on the sale, lease, or other disposition of property, whatever is collected on or distributed on account of collateral, rights arising out of collateral, and certain claims arising out of the collateral.
What is an example of a secured transaction?
A secured transaction is a transaction that is founded on a security agreement. The purchase of a car through financing is an example of a secured transaction. The car dealership or some other lender pays for the vehicle in return for a promise from the buyer to repay the loan with interest.
What are proceeds under the UCC?
Section 9-102(a)(64) of the UCC provides that proceeds are whatever is received upon the sale, lease, license, exchange, or other disposition or collection of, or distribution on account of, collateral.
What is the most common type of secured transaction?
Secured transactions come in many forms, but three types are most common for consumers: pledges, chattel mortgages, and conditional sales. A pledge is the delivery of goods to the secured party as security for a debt or the performance of an act. For example, assume that one person has borrowed $500 from another.
Are proceeds automatically perfected?
Like current law, if the security interest in the original collateral was perfected, then the proceeds security interest is automatically perfected for a short period of time, giving the creditor an opportunity to take the steps necessary in order to maintain perfection.
What does UCC stand for?
Uniform Commercial Code
“UCC” stands for Uniform Commercial Code. The Uniform Commercial Code is a uniform law that governs commercial transactions, including sales of goods, secured transactions and negotiable instruments. The Uniform Commercial Code is a comprehensive set of statutes created to provide consistency among the states.
What is the simplest type of secured transaction?
Here is the simplest (and most common) scenario: Debtor borrows money or obtains credit from Creditor, signs a note and security agreement putting up collateral, and promises to pay the debt or, upon Debtor’s default, let Creditor (secured party) take possession of (repossess) the collateral and sell it.
Who are the parties in a secured transaction?
A secured transaction is a contractual arrangement where a borrower or buyer pledges property as collateral for a loan or purchase. The borrower or buyer is known as the debtor, and the lender or seller is known as the creditor, and more specifically the secured party.
Which article of the UCC covers secured transactions?
Article 9
Article 9 is an article under the Uniform Commercial Code (UCC) that governs secured transactions, or those transactions that pair a debt with the creditor’s interest in the secured property.
What is the purpose of a secured transaction?
The law of secured transactions in the United States covers the creation and enforcement of a security interest. Usually, a secured transaction happens when a person or business borrows money for the purpose of acquiring property, including real estate, vehicles or business equipment.
Is a car loan a secured transaction?
Some common types of secured transactions include mortgage and car loans. When a debtor borrows money to purchase a car, the vehicle is the collateral for the loan. The creditor has a security interest in the vehicle and the creditor can repossess and sell the car if payments are not made.
What are proceeds under Article 9?
As discussed in last issue’s column, revised Article 9 greatly expands the definition of “proceeds” so that a security interest in specific collateral will automatically extend to after-acquired property that is derived from the original collateral, even if there is no disposition of the original collateral.
The secured transaction always involves a debtor, a secured party, a security agreement, a security interest, and collateral. Article 9 applies to any transaction “that creates a security interest.” The UCC in Section 1-201 (35) defines security interest Right in personal property to secure payment or performance of an obligation.
How does security interest work in a secured transaction?
The security interest helps ensure the debtor’s payment. This interest is granted through a security agreement. When the security agreement is complete and valid, the security interest attaches to the agreement. This is known as attachment and is the method by which the security interest becomes effective.
How does perfection work in a secured transaction?
Perfection gives the secured party priority over other creditors that later seek a right to the collateral. Then, should the debtor default by failing to make payments when due or otherwise failing to fulfill the terms of the security agreement, the secured party can exercise his or her rights to the collateral.
What happens to the collateral in a secured transaction?
The secured party can keep the collateral or sell it. The secured party must apply any proceeds toward the default amount. If the collateral doesn’t fully cover the amount of the default, then the secured party can sue the debtor for the remaining amount.