MI Bar Secured Transactions 1 — Questions and Answers
Question 1: What is a security interest under Article 9 of the UCC?
- An interest in personal property or fixtures that secures payment or performance of an obligation (Correct answer)
- A government bond
- A type of insurance policy
- An interest in real property only
Correct answer: An interest in personal property or fixtures that secures payment or performance of an obligation
A security interest is a creditor's interest in the debtor's personal property that serves as collateral to secure repayment of a debt or performance of an obligation under UCC Article 9.
Question 2: What are the requirements for attachment of a security interest?
- Value given, debtor has rights in the collateral, and a security agreement authenticated by the debtor (Correct answer)
- Only a signed promissory note
- Registration with the state secretary
- A court order approving the security interest
Correct answer: Value given, debtor has rights in the collateral, and a security agreement authenticated by the debtor
Attachment requires three elements: the secured party must give value, the debtor must have rights in the collateral, and there must be an authenticated security agreement describing the collateral.
Question 3: What is the purpose of filing a UCC financing statement?
- To perfect the security interest and establish priority over other creditors (Correct answer)
- To create the security interest
- To transfer ownership of the collateral
- To notify the debtor of the debt amount
Correct answer: To perfect the security interest and establish priority over other creditors
Filing a financing statement (UCC-1) perfects the security interest, giving public notice and establishing the creditor's priority position relative to other creditors who may claim the same collateral.
Question 4: What is a purchase money security interest (PMSI)?
- A security interest in goods that secures the price of those goods or a loan used to purchase them (Correct answer)
- Any security interest created at the time of purchase
- A government-guaranteed loan
- An interest only in real estate purchases
Correct answer: A security interest in goods that secures the price of those goods or a loan used to purchase them
A PMSI arises when the secured party provides the loan or credit that enabled the debtor to acquire the specific collateral, giving the PMSI holder priority over earlier-filed security interests.
Question 5: What happens to a security interest when the debtor defaults?
- The secured party may repossess the collateral and either keep it or sell it to satisfy the debt (Correct answer)
- The security interest is automatically voided
- The debtor must file for bankruptcy
- The court must conduct a public auction
Correct answer: The secured party may repossess the collateral and either keep it or sell it to satisfy the debt
Upon default, the secured party has the right to take possession of the collateral (peacefully or by court order) and may dispose of it through commercially reasonable sale or retain it in satisfaction of the debt.
Question 6: What is the first-to-file rule in secured transactions?
- Among perfected security interests, priority generally goes to the first to file or perfect (Correct answer)
- The first creditor to make a loan always has priority
- Priority is based on the size of the debt
- The most recent filing always takes priority
Correct answer: Among perfected security interests, priority generally goes to the first to file or perfect
Under UCC Article 9, when multiple perfected security interests exist in the same collateral, priority is generally determined by which was first filed or perfected.
MI Bar Secured Transactions 1
What is a security interest under Article 9 of the UCC?