Perfection of security interest in personal property

     A secured party provides constructive public notice of its interest in personal property or fixtures by perfecting its security interest.  Perfection affords the secured party a claim to the collateral that is superior to a creditor who obtains a lien through the judicial process (a "lien creditor") after the secured party perfects its security interest.  U.C.C. 9-201(a), U.C.C. 9-317(a)(2)(a).  Timely perfection also protects the security interest from avoidance by the bankruptcy trustee or debtor-in-possession, just as recording of a mortgage or deed of trust on real property protects the consensual lien on real property against avoidance in bankruptcy.  See Commentary.Avoiding liens in bankruptcy.  Some forms of perfection also protect the secured party's interest in collateral, including proceeds of the disposition of collateral, against the competing claims of some other creditors and purchasers.  

     The method of perfection depends upon the type of collateral, but in all cases requires at least the attachment of a security interest.  U.C.C. 9-308(a).  Attachment is discussed in Commentary. Enforceability of consensual lien in personal property and fixtures.  For some types of collateral one method of perfection is mandatory and for other types of collateral more than one method of perfection is permissible.  The methods of perfection are:  (1) automatic perfection (i.e. nothing beyond attachment of the security interest is required); (2) filing a financing statement (not to be confused with a "financial statement" prepared by an accountant to report relevant financial facts about an entity); (3) possession of the collateral; (4) control of the collateral; or, (5) compliance with state certificate-of-title legislation covering automobiles, trailers, mobile homes, boats, farm tractors, and the like, or compliance with a pre-empting statute, regulation, or treaty of the United States. 

     We consider one important type of transaction for which perfection is automatic: the purchase-money security interest in consumer goods. There are thousands if not millions of such transactions annually.  Note that this is but one of thirteen types of security interests for which perfection is automatic.  See U.C.C.  9-309.  We also consider a variety of issues relating to the filing of a financing statement, such as content of the financing statement, authorization to file a financing statement, location of filing, and necessity to amend or refile.  We briefly consider perfection through possession, control, or compliance with certificate-of-title legislation.  

     Remember that failure to perfect a security interest does not render the security interest unenforceable against the debtor.  However, failure to perfect a security interest risks avoidance of the security interest in bankruptcy or subordination to the claims of third parties. See Commentary. Enforceability of consensual security against third parties.