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Secured Party Priority in Future Advances to a Debtor - YouTube
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So what is the priority of a secured
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creditor with regard to future advances
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made to the debtor? Okay. Well let me
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paint this an area for you, so you have
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the secured party you have the debtor
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and you have the debtor in possession of
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the collateral that secures payment of
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the debt owed to the secured party.
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Well lots of times the secured party will the
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original security agreement will allow
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for the secured party to give additional
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funds to the debtor, that is extend them
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more credit and that extension will of
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credit will also be secured by the
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collateral. So assume secured party here
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lens ten dollars to debtor dinner post
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the collateral and the pursuant to the
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security agreement, they say okay we will
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allow for the secured party to extend
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you up to this amount of money against
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the collateral so cynical items worth
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twenty dollars. So the secured party is
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going to feel comfortable loaning up to
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another ten dollars to the debtor
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because they can feel comfortable that
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their security interest will attach in
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the collateral up to the value of this.
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And if the secured party has already
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filed that or is the first to perfect
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this security interest they will have
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priority with regards to any subsequent
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security interest. So this original ten
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dollar loan the security agreement is
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filed, and the financing statement is
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filed, and it gives the public notice any
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subsequent secured parties subsequent
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lenders against the collateral, know that
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this loan relationship is subject to the
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extension of ten dollars more of credit
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or future advances as they call them.
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So secured party extends that extra ten
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dollars up to so they now have a debt of
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twenty dollars secured by the collateral.
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This is going to have priority back to
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the time of the original perfection of
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the original ten dollar security
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agreement the financing statement
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covering the original ten dollar, so this
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will have priority over any subsequent
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secured parties who have taken a
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security interest in the property.
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Okay, so this is number one. The second
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scenario is priority over lean creditors.
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So as we discussed, possessory lien
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holders are generally going to have
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priority over any one okay they're going
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to have to be paid first. But when you
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have non possessory lien holders, right,
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judgment liens or something like that.
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The secured party who makes a future
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advance will have priority over these
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lien holders in two scenarios. One if
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they make the advance of funds within 45
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days of the lien attaching. Okay. If this
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happens within 45 days then they have
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priority in their future events over the
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priority of the lien creditor.
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Second scenario is if they make the future
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events outside of the 45-day window.
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All right. It still has to be pursuant to the
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security agreement but outside of the
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45-day window then they have to not have
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knowledge of the lien attaching. Okay.
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So if they have no knowledge and it's
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outside the 45-day window that can still
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save them and their future events can
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still have priority in the collateral,
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so that's the second scenario. Third scenario
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is when the debtor sells the collateral
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and then a future advances made.
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All right. In this scenario if the purchaser
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is a buyer in the ordinary course where
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they're going to take the collateral
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free and clear of the security interest.
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Right. But if the debtor has if the
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secured party has made the future
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advance within 45 days of the sale and
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without knowledge of the sale then the
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purchaser of the collateral, okay, the
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buyer in the ordinary course, will be
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subject to that security interest so
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that's the requirement no knowledge and
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within that forty five-day window or
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even if they didn't extend the future
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events within the 45 day window they
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make the future advance pursuant to an
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agreement to make a future events that
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was entered into within that forty
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five-day window. So this can even Trump
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the rights of a buyer in ordinary course
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in this scenario
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with regards to priority of the original
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parties security interest in the
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collateral particularly with the future
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advanced scenario.
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