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Published Articles by David Balovich

Published in: Creditworhty News
Date: 10/29/97

Last week I wrote in reply to a e-mail concerning bankers who are secured creditors. It was my opinion that all mercantile creditors should avail themselves of the right to secure their transactions.

This brought more mail, questioning the difference between a Security Agreement and a Purchase Money Security Agreement.

A Security Agreement may use as collateral, Inventory, Equipment, Consumer Goods, Farm Products, General Intangibles and their proceeds as defined by Article 9.. This is known as a general filing and many creditors may have a security interest in the same collateral. The first creditor to file is considered first filed and subsequent filings by other creditors fall in line behind the first filed. Filing order is determined by date and time the Security Agreement is recorded by the filing officer in the appropriate jurisdiction. A general filing may secure old debt, existing debt or new debt.

A Purchase Money Security Agreement may only secure Inventory or Equipment and proceeds of a specified creditor. Upon perfection of the PMSA all of the specified creditors Inventory or Equipment is removed from any existing or future filings and the specified creditor is considered to be first filed in their particular collateral. Unlike a general filing a PMSA may only secure new debt that is obtained after the perfection of the PMSA. However, specified collateral already in the possession of the debtor is considered part of the collateral. A PMSA may NOT be used to secure old or existing debt.

In a general filing there are no further requirements on the creditors part other then perfecting the Security Agreement. In a PMSA the creditor is required to do the following:

Notify all existing secured creditors that a PMSA is being obtained. This must be done in writing and the letters should be sent certified mail return receipt requested.

Provide the debtor new debt within 20 days of perfection. The majority of states subscribe to 20 days but there are a few who require that new debt be supplied within 10 days of perfection. Check with the Secretary of State UCC Division of the state that you are filing in.

Upon continuing a PMSA all existing secured creditors must again be notified in writing.

If these requirements are not met then the PMSA reverts to a general filing and you are in line behind the first filed.

AN IMPORTANT REMINDER: If you are a creditor with a security interest perfected in the state of Colorado. You must continue that filing before December 31, 1997 regardless of when the filing is renewable. Colorado is transferring to a new system January 1, 1998 and they are requireing that continuations be filed on all filings to transfer them from the old system to the new. If you fail to file a continuation you will not be secured after December 31, 1997. This continuation will not alter your filing in any way and if your filing has an expiration date in January 1998 you will be required to renew it as you normally would.

If you have any questions concerning this I recommend you contact the UCC office in Denver at 303-894-2200, press 3.

I wish you well

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