Inventory rule, it says, "If acquiring goods in the ordinary course of business, inventory
to seller.
Buyer's claim is superior to all other claims, so if the goods are purchased from a retailer,
the inventory is acquired free of all other claims, even if a purchaser is aware of the
claim."
So, even if I know there's that prior claim, I still get it free of that claim.
Couple of other minor things, filings.
"The jurisdiction for almost all filings is determined by the debtor's location, not where
the collateral is.
The priority among creditors..."
Who gets it first?
The inventory rule, a buyer in the ordinary course of business gets it.
"Holder of a statutory lien, like a mechanic's lien.
Then a PMSI when attached and perfected.
And then among other perfections by filing, other perfected interests or judicial liens,
and then if not one perfects in order of attachment."
So, that's kind of hierarchy of who gets what.
"What are the creditors' responsibilities for the collateral?
Use reasonable care to preserve any collateral in their possession.
Confirm the unpaid balance of the amount of the debt when requested by the debtor.
File or send the debtor a termination statement releasing the collateral once the debt has
been paid.
What are the procedures on default?
The debtor has the right of redemption once," in other words, to redeem it, "the debtor's
right redemption is terminated, and the creditor repossesses the property, and forces a sale."
That's what happens once they don't pay.
"If the proceeds are not sufficient, if the loan is without recourse, the lender has no
further claim.
If the loan is with recourse, the debtor will be personally responsible for any unpaid portion,
referred to as a deficiency judgement.
If the proceeds exceed the amounts of the secured creditor, with the highest priority,
any excess if first applied to the claims of other secured creditors being with secured
creditor with the highest priority followed with the lower, then the debtor will be entitled
to any remaining proceeds.
Any objection would be required within 21 days.
In the case of consumer goods, if a creditor may not retain the goods," it says, "and the
property and is required to dispose of it within 90 days, they pay at least 60 percent."
So, let's say, and this law came out because of the following.
What happened is, I would loan you money.
You would get this asset, I take it as collateral.
You're a little bit late, eh, don't worry about it.
You're late on the payment, don't worry about it.
You're late on the payment, don't worry...
You pay 98 percent of it off.
You're late, I repossess it, and I go, sorry, I'm going to keep it.
What it says here is if they have paid at least 60 percent of the obligation, when I
repossess it, I need to dispose of it within 90 days, and give them back any excess, so
if I sell it for more I've got to give them back the rest.
But the point is, I can't just repossess it and keep it.
Because too many creditors were waiting until you got to the very end and then repossessing
it and then just keeping it.
Now, they say, you've got to get rid of it within 90 days, and then if there's excess
funds, then I can pay it back.
All right, so that's a lot of great information.
What are we talking about?
Secured transaction, it's where the creditor loans money or extends credit to the debtor.
In exchange, they get a security interest in the debtor's property called collateral.
Who are they trying to protect themselves from?
They want to protect themselves from DOTS, the debtor, other creditors, trustee and bankruptcy,
subsequent purchaser from the debtor without knowledge of perfection.
How do you protect yourself from the debtor?
Attaching, the other people?
Attach and perfect, how do you attach?
PIG, property owned, create an interest, give value.
Whenever this happens, all three, boom, you've attached.
What does this give you rights against?
The debtor only.
Signed security agreement?
Describes the collateral, signed by the person giving up their rights, the debtor.
How do you perfect?
Filing a financing statement, automatic, or take possession.
Filing a statement?
Take possession, automatic, PMSI, consumer goods only, the loophole, consumer to consumer,
you can't get it back unless you close the loophole by filing before they get it or within
20 days of attachment.
This 20 day retroactive rule applies to both consumer goods and equipment.
It does not apply to what?
To inventory.
Okay, so these are all important rules.
Inventory rule is what?
If it's inventory in the hands of the seller, the buyer gets it free of any prior interest.
They don't get it free of the interest you create.
All right, so in a minute, we'll apply all this great stuff and we'll do some questions.