Lesson 3: Types of Secured Transactions

Welcome to Lesson 3 of our series on Introduction to Secured Transactions. In this lesson, we will explore the various types of secured transactions that are fundamental to understanding secured transactions law.

1. Types of Collateral

Secured transactions can involve different types of collateral, which can be broadly categorized into tangible and intangible assets. Let's take a closer look at each type:

Tangible Collateral

These are physical assets that can be touched and moved. Common examples include:

  • Inventory
  • Equipment
  • Vehicles

Intangible Collateral

These are non-physical assets. Common examples include:

  • Accounts receivable
  • Chattel paper
  • Intellectual property (patents, trademarks, copyrights)

2. Classification of Secured Transactions

Secured transactions can be classified based on the type of collateral and the nature of the transaction. The main categories are:

Purchase Money Security Interest (PMSI)

A PMSI is a special type of security interest that enables a lender who provides financing for the acquisition of goods to have priority over other secured creditors.

For more details, refer to our lesson on Purchase Money Security Interests (PMSI).

Non-Purchase Money Security Interest

This type of security interest does not involve the purchase of the collateral. Instead, it may be a general security interest in existing or future assets of the debtor.

3. PMSI vs. Non-PMSI

Understanding the distinction between PMSI and non-PMSI is crucial for determining the priority of claims. The diagram below illustrates the relationship between these types:

graph TD A["Secured Transactions"] --> B["PMSI"] A --> C["Non-PMSI"] B --> D["Inventory"] B --> E["Equipment"] C --> F["General Security Interest"]

4. Security Interests in Real Property vs. Personal Property

Secured transactions may also differentiate based on whether the collateral is real property or personal property.

Real Property

Includes land and anything attached to it, such as buildings. Common security interests in real property are mortgages and deeds of trust.

Personal Property

Includes movable assets like inventory, equipment, accounts receivable, and intellectual property.

5. Key Regulations and Legal Framework

Secured transactions are primarily governed by UCC Article 9 in the United States. This legal framework provides the rules for creating and enforcing security interests.

International secured transactions may be governed by treaties and conventions such as the Cape Town Convention.

Conclusion

Understanding the types of secured transactions and their respective regulations is essential for navigating the complexities of secured transactions law. Be sure to continue to our next lesson on Uniform Commercial Code (UCC) Article 9.

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