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
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
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
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