What is a Secured Transaction? Understanding Article 9 of the Uniform Commercial Code
UCC, Revised Article 9
As promised, this week’s blog post will delve a little deeper into the Uniform Commercial Code (UCC) through a discussion of Article 9: Secured Transactions.
According to the Law Library, Secured Transactions are, “Business dealings that grant a creditor a right in property owned or held by a debtor to assure the payment of a debt or the performance of some obligation.”
In a little more detail, a Secured Transaction is financial arrangement where a creditor acquires a security interest in property that is owned by a borrower. Secured Transactions typically involve personal property, though they may include real property in some instances. In a Secured Transaction, the borrower pledges rights to the property (collateral) in order to secure the loan. This arrangement minimizes risk for the creditor since they can repossess or foreclose upon the collateral should the debtor default.
The rights and responsibilities of both parties are detailed in a signed Security Agreement. The creditor will then usually file a UCC Financing Statement to give public notice of their interest in the collateral. Filing the UCC Financing Statement also serves to secure a priority position for the creditor to collect if the borrower fails to meet his or her financial obligation.
Article 9 of the UCC underwent a major revision in 2001 to bring about improved clarity and increased uniformity across state lines. Several important changes came out of Revised Article 9 including:
- Elimination of signature requirements
- Standardized National UCC Financing Statement Form
- Supergeneric collateral language is acceptable
- Filing by debtor location
Be sure to check back next week for more information on UCC Financing Statements!