Secured transactions are transactions in which the debtor gives the creditor a special right, or lien, on the debtor’s property in order to assure payment of the debt. The property may be real property or personal property. The creditor is then a secured creditor as opposed to an unsecured creditor.

  • A secured creditor has priority over an unsecured creditor in debt collection efforts against the property securing the debt.

A secured creditor assures greater rights against other creditors of the same debtor by perfecting its security interest.

  • Perfection of a security interest is usually accomplished by a public filing of a document containing information identifying the creditor, the debtor, and the secured property.
  • A perfected secured creditor has priority over an unperfected secured creditor.

Real Property Exceptions

Most ordinary consumer transactions, other than real property purchases, are unsecured transactions meaning that debtors do not give their creditors rights in property. Exceptions include:

  • Banks providing home mortgage money are usually secured and perfected creditors.
  • Automobile financiers usually take a security interest in an automobile.

Debtor Protection

The Uniform Commercial Code (UCC), Article 9 governs secured transactions in personal property, such as automobiles. Article 9 is a uniform law enacted in all states, but its specific provisions often vary from state to state. Generally, Article 9 gives debtors certain rights when a creditor attempts to enforce its lien against the property of the debtor. These rights require that the creditor comply with mandatory procedures in the enforcement of its security interest. Mistakes made by the creditor may affect their rights to collect the debt.