An undertaking, typically but not exclusively by a financial institution, to make payment (or provide other value) to a designated beneficiary upon the occurence of stated events. For example, a foreign buyer of goods may apply for and deliver a letter of credit to a domestic seller in which a bank promises to pay the seller the purchase price of goods sold upon presentation to the bank of a bill of lading showing loading of the goods with a carrier. In secured transactions, a letter of credit procured by a debtor for the benefit of a lender (e.g. that the issuer of the letter of credit will pay the lender upon default by the debtor) serves, in effect, as a form of security for repayment of the debt, and is typically referred to as a standby letter of credit.
See Bankr. Code 101(37). A lien may be created by agreement of the parties (consensual lien), by statute (statutory lien), by use of enforcement of judgment procedures of the judicial process (judicial lien), or by court when fair and equitable under the circumstances (equitable lien).
A term of art under Article 9 of the Commercial Code referring to those creditors who have obtained a lien through use of the enforcement of judgment procedures of the judicial process and also to those persons who, by virtue of other state law or federal bankruptcy law are given the same rights and powers as a creditor who has obtained a lien through use of the enforcement of judgment procedures of the judicial process. See UCC 9-301(3).
A debt is said to be liquidated when its amount is known or readily ascertainable by an undisputed method of calculation.
A ratio in which the numerator is the amount of a loan and the denominator is the fair market value of the property which serves or is to serve as security for the loan. The ratio either describes an existing state of affairs or sets a guideline for the amount of a loan which a lender will make to borrowers. Ratios differ depending upon a variety of factors, including the type of lender, the type of borrower, the creditworthiness of the borrow, the nature of the collateral, and the interest rate to be charged. For example, a lender will typically loan 80% of the appraised value of a residence to a prospective purchaser of the residence who will be using the loan, together with the purchaser's down payment of 20%, to purchase the residence.
A period within which the lender guarantees that a quoted interest rate or points for a loan will remain unchanged.
One form of instrument used to create a consensual lien on real property (and fixtures). The debtor (mortgagor) executes a mortgage in favor of the creditor (mortgagee) and thereby grants a lien on real property (and fixtures) in favor of the mortgagee to secure specified debt. Upon default, the mortgagee is entitled to foreclose the mortgage, repaying some if not all of the debt from the proceeds of the foreclosure sale. Compare Deed of Trust.
Foreclosure of a consensual lien on real property (and fixtures) through a private sale. Compare Judicial Foreclosure.
Non-possessory security interest
A lien on property which is not in the possession of the secured party. The phrase is typically used to describe an Article 9 (i.e. consensual) security interest in personal property and fixtures.
A debt is said to be non-recourse when the secured party's recourse upon the debtor's default is limited by agreement or statute to the foreclosure on the collateral. In other words, the creditor's recourse is only in rem, not in personnam.
A prepayment of interest (often by a developer of real property) to a lender which induces the lender to loan at a permanent rate of interest lower than the rate which the lender otherwise would charge.
A fee charged by a lender at the initiation of a loan which increases the lender't total yield on the loan. One point is equal to one percent of the amount financed.
A lien on property which is in the possession of the secured party. The phrase is typically used to describe an Article 9 (i.e. consensual) security interest in personal property (such as a security interest in a ring held by a pawnbroker to secure repayment of a loan made to the owner of the ring).
That which is received upon the sale or other disposition of collateral, or the sale or disposition of prior proceeds. See UCC 9-306(1).
Purchase money (and purchase money security interest, purchase money mortgage, and purchase money deed of trust)
Money advanced by a creditor to enable the debtor to purchase specific property. The money may be advanced by the seller of the property (in the form of deferring the collection of some or all of the purchase price through an agreement to take installment payments or a balloon payment, often represented by a promissory note) or the money may be advanced by a third party who, upon the agreement of the buyer to repay the loan, pays the loan proceeds to the seller through or on behalf of the buyer. In either case, where the obligation to repay is secured by a consensual lien on the property being purchased, the lien is referred to as a "purchase money security interest" in the case of personal property and fixtures (see UCC 9-107) or a "purchase money mortgage" or "purchase money deed of trust" in the case of real property. Where a seller is giving purchase money to enable the purchase of real property, the phrase "seller financing" is frequently used to describe the transaction.