Collateral and Security Interest

A security interest is an interest in personal property or fixtures that a creditor obtains to secure payment or performance of an obligation. This is generally called, secured transactions.

One usually thinks, in such instances, of goods as being put up as collateral. Whoever, the security interests are much broader as there are different classifications, which are important in determining how a creditor gets as enforceable security interest in a particular kind of collateral.

The classifications include, instruments which cover cheques, notes, drafts, stocks, bonds and other investment securities.

 Documents of title, which cover bills of lading, warrants, different receipts. Accounts which cover, rights of payment for goods sold or leased or for services rendered that are not evidenced by instruments or chattel paper but rather are carried on open account.

Chattel paper which includes written documents that evidence both an obligation to pay money and a security interest in specific goods. 

General intangible rights that cover, patents, copyrights, royalty rights, franchises and others. Goods that are divided in several classes as consumer goods used or bought primarily for personal family or household use as cars, furniture and appliances.

Equipment that include the type of goods used or bought for use in business activities. Farm products which cover, crops, livestock. Or supplies used or produced in farming operations as long as they are still in the possession of a debtor who is engaged in farming.

Inventory which are the goods held for sale or lease or to be used under contracts of service, as well as raw materials, work in process or materials used or consumed in business.

Fixtures are the goods that will be affixed to real property or that which are considered a part of the real property.

Each of this could be considered and taken as security or collateral, whoever, this depends on the transaction and the merits of each case, which is which, the suitability, the surrounding circumstances and the relation between the contracting parties.

The goal of a creditor, normally, is to obtain a security interest in certain personal property that will be good against the debtor and, also, other creditors of the debtor or a person who might purchase the property from the debtor.

In case the debtor defaults on the debt, the creditor wants to have a better right to claim the property than anyone else. Obtaining an enforceable security interest, to be effective, needs to be attached to a particular item or items of the debtor’s property.

One needs to be careful and more vigilant when choosing the collateral and suitable security, as they may be of no or less value, when you need to sell them to cover your entitled obligations. 

Don’t accept any mortgage or pledge or lien or collateral or others unless their value is there fully intact and all through including ups and downs of prices and depreciation rate, as there are many legal and logistical problems that may appear later, when it is too late to go back or withdraw or cancel. Always better, to look, collect info and seek professional expert opinion.