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Security
Agreements
A security
interest is a claim or debt for which a creditor holds an interest in
collateral. It can be created in one of two ways:
- A pledge
of assets requiring that the debtor deliver to the creditor collateral
or documents of title that represent the assets pledged.
- An agreement,
called a "security agreement," between a secured creditor
and a debtor. The essence of the agreement is the statement "Debtor
hereby creates a security interest in favor of (secured party) in the
following property: (insert description)." After entering into
a security agreement, the secured party may be entitled to take possession
of the identified personal property (collateral) in the event of a default
by the debtor.
Perfecting the Security Interest
The secured
creditor can protect his or her security interest against the claims of
third parties in one of the following ways:
- Take possession
of the collateral.
- File a
notice with the appropriate filing officer that the creditor has a security
interest in the property covered by the security agreement. A Financing
Statement also must be filed to perfect (prove the validity of) the
security interest.
Source:
"Manual of Credit and Commercial Laws," edited by Charles M.
Tatelbaum and John K. Pearson, available at the NACM
Bookstore.
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