Question

For this assignment, think of three items you personally have that involve security. If you do not actually have any security interests, list three items that you can envision having in the future, and complete the assignment as if you currently hold them.

List the three items you chose. (2 pts)

For each of the three items, explain if and when attachment occurred. (6 pts)

For each of the three items, explain if and when perfection occurred. (6 pts)

Explain the priority each of the creditors would have if you defaulted on your promise to pay. (6 pts)

Answer 1

List the three items you chose.

Some of legal private properties I choose as securities a land, a car and a house.

For each of the three items, explain if and when attachment occurred.

1. If you approach the bank for some money to start up a company, for example, the contractual agreement will go to consideration level where you exchange value. You can promise to offer a piece of land as collateral in exchange for a big sum of money from the particular bank. You are deemed the legal owner of the land if you possess an authenticated original title deed pertaining to the land with your name written on it. You will sign the security agreement or the credit contract and as such the bank gain interest in the collateral hence attachment.
2. Creditors can also use my personal car that currently has a value of $20,000 as collateral. The car’s title has my name inscribed on it hence I own the vehicle. In the event of a need for credit the creditor would lend me money worth the car. An attachment would occur when I sign the creditor’s contract with the bank in the condition of the car as the security.
3. Attachment occurred when we wanted to buy a house for living when we asked the bank for a loan. The bank had agreed to lend us the loan as long as we paid back followed by interest for 30 years.

For each of the three items, explain if and when perfection occurred.

According to Distenfield & Distenfield (2005), the perfection of a security interest is the act of ascertaining one’s interest in a collateral hence preventing other parties from creating an attachment to the same collateral. Such parties would include other creditors and bankruptcy trustee among others. For the land, the creditor would perfect its interest by possessing the title deed pertaining to the land. Alternatively, the bank would perfect its interest in the land collateral by filing a financial statement with the necessary public office. Just like the land, the creditor can possess the car’s title hence perfection. Lastly, perfection occurred for the house when the bank has filed a financing statement.

Explain the priority each of the creditors would have if you defaulted on your promise to pay.

In an event of person’s failure to pay the already secured credit transaction, the creditor would obtain the collateral in lieu of the payment. The priorities of the creditors should only pick the items listed as securities and only those he or she has a security interest. In this regard, the creditor cannot take a home as collateral if it was not part of credit contractual agreement. For the land creditors can take the land, for the car – a car, and for the house – house if you stop paying the mortgage.

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