D6 - 92_109.pdf

DIMENSION 6 - 92 NOTES: In certain instances the security agreement must describe real estate. A description of land is required when the security agreement covers timber to be cut. Proceeds do not have to be specifically described. Other Provisions You May Require Statement of the use of the collat...

DIMENSION 6 - 92 NOTES: In certain instances the security agreement must describe real estate. A description of land is required when the security agreement covers timber to be cut. Proceeds do not have to be specifically described. Other Provisions You May Require Statement of the use of the collateral. The use statement may help to further identify the collateral. Description of the obligation. The security agreement should describe the indebtedness and obligations secured by the collateral. Warranties and representations. Among other things, such as representations as to the corporation’s standing and financial condition, the security agreement should contain a statement that the debtor owns the collateral free of all security interests and liens. Covenants of a debtor. The debtor should agree to refrain from selling the collateral, should pay taxes on it, insure it, and otherwise keep it in good condition. Remedies in the event of default. The security agreement should spell out what you may do in the event of default. Documentation requirements. Security agreements are usually tailored to the particular collateral. MORTGAGES/DEEDS OF TRUST CRC US Body of Knowledge Most states use either mortgages or deeds of trust for real estate collateral. Mortgages are more common. DIMENSION 6 - 93 A mortgage is an agreement between two parties, a mortgagor and a mortgagee. The mortgagor is the party granting the lender an interest in real property to secure repayment of a loan. The mortgagee is your institution. If the borrower does not repay the loan, you can foreclose on the mortgage to obtain partial or full payment of the loan. A deed of trust is an agreement among three parties: a trustor, a trustee, and a beneficiary. The trustor is the party granting an interest in real property to secure repayment of a loan. The trustee is a party who holds an interest in the real property for the benefit of the beneficiary. The beneficiary is your institution. In many states it is legal for the lender to be both trustee and beneficiary. If the borrower does not repay the loan, the trustee can hold a trustee’s sale to obtain funds to repay all or part of the loan. In states where deeds of trust are permitted by law, lenders choose them because foreclosure procedures are usually easier to follow. There are also state differences in redemption periods between mortgages and deeds of trust. The state differences often favor deeds of trust. Lines of Credit: Committed and Uncommitted There are three types of lines of credit: unadvised credit lines, discretionary credit lines, and committed credit lines. UNADVISED LINES OF CREDIT/GUIDANCE LINES You may obtain approval for a loan amount greater than the amount requested by a borrower because you anticipate that a customer will have a future financial need and you want to be able to quickly approve the additional amount. Some lenders call the additional amount an unadvised line of credit. Others call it a guidance line. No commitment or terms and conditions letter is sent to the customer. You must not make any oral or written communication of the approval to the customer. NOTES: Dimension 6 // Identify Repayment Sources and Appropriately Structure and Document Credit Exposures for.. MORTGAGES DIMENSION 6 - 94 NOTES: DISCRETIONARY LINES OF CREDIT A discretionary line of credit is established for a specified period of time and expresses your intention to extend credit as required by the borrower but at your sole discretion. It is intended to provide you with the widest latitude in adjusting or terminating the line of credit. The written agreement must make it clear that you have no legal obligation to honor a request made by the borrower, and you should make no contradictory oral or written representations. Requirements for documenting the terms of a discretionary line of credit are: Date and time of extension. Name and address of borrower. Total credit amount that is to be drawn on and remain outstanding. Statement that you may adjust or terminate the line for any reason or for no reason at all. There is no objective standard provided for determining the conditions for cancellation. Collateral description (if secured). Maturity (date the commitment will mature). COMMITTED LINE OF CREDIT CRC US Body of Knowledge A committed line of credit is an arrangement evidenced by a written agreement signed by you and the borrower in which you commit to advance funds on specific terms at their request. It is generally used when a customer has requested a credit line and you believe the customer is creditworthy and will continue to be creditworthy during the term of the approved credit line. DIMENSION 6 - 95 A participation agreement is a written agreement between two or more lenders for the purchase by one or more lenders of an interest in a loan or loans originated by another. A participation arrangement usually includes: The terms of the arrangement between the lenders. It may be either a master agreement covering a series of loan transactions or an agreement covering a single loan transaction. A clause that specifies the order in which the originating lender or purchasing lender(s) will advance funds and the order in which the lenders will be repaid from payments received from the borrower. Possible repayment arrangements include the following: –– Pro rata: Funds are advanced and repayment structured in proportion to the amount of the loan retained by the originating lender and the amount of the loan sold to the purchasing lender. –– First-in, first-out (FIFO): The originating lender advances its share first and receives payments up to its share before the purchasing lender is paid anything. –– Last-in, first-out (LIFO): The purchasing lender advances funds after the originating lender but is repaid first. A participation certificate is often used by the originating lender to show how much of the loan was sold to the purchasing lender. NOTES: Dimension 6 // Identify Repayment Sources and Appropriately Structure and Document Credit Exposures for.. PARTICIPATION AGREEMENTS DIMENSION 6 - 96 NOTES: IMPORTANT CONSIDERATIONS The seller of a loan participation makes no warranties or representations as to credit or documentation quality. If your institution is the buyer, it must independently analyze the creditworthiness of the borrower and review the documentation prepared for the loan. To protect against the insolvency of the selling lender, you should insist that the participation agreement provide that any funds collected are held in trust for your institution based on your institution’s pro rata share. A more complex type of participation arrangement is that which is often referred to as a loan syndication. The participation or syndication agreement used is more extensive and frequently names an agent lender for the credit arrangement. The agent lender’s duties are either included in the syndication agreement or in a separate agent agreement. Also included are provisions outlining participants’ rights to vote on various decisions and whether there will be direct contact with the borrowing entity. This agreement and other underlying loan documentation should always be reviewed by your legal counsel. PERFECTING LIENS In the following sections, we will explore topics on lien perfection: Basic Concepts Associated with Secured Loans Purchase Money Security Interests Landlord Waivers UCC Definitions UCC Collateral Perfection Chart CRC US Body of Knowledge Possessory Liens UCC Filings Assets Not Covered by UCC DIMENSION 6 - 97 When you enter into a security agreement, you are granted a security interest in property by the owner of the property. This means that in the event of default, you have the right to take the collateral in satisfaction of the debt or to sell it and use the proceeds to pay off the debt. Topics covered in this section about secured loans are: Attachment Perfection Rules for Establishing Priority Between Two Secured Parties Improving Priority Position Purchase Money Security Interests Landlord Waivers ATTACHMENT The Uniform Commercial Code (UCC) provides that a security interest attaches to collateral when three conditions have been met. The debtor or third party grantor must sign a security agreement. You may also take possession of the collateral. The debtor or third party grantor must have rights in the collateral. It is generally easy to establish such rights because the debtor either owns the property when the security agreement is signed or will acquire it from a seller. The lender must give value for the collateral. Value given means that the lender makes the loan, issues a letter of credit, or makes credit available whether or not it is drawn upon. An existing unsecured loan also constitutes value for obtaining a security interest for that loan. NOTES: Dimension 6 // Identify Repayment Sources and Appropriately Structure and Document Credit Exposures for.. BASIC CONCEPTS ASSOCIATED WITH SECURED LOANS DIMENSION 6 - 98 NOTES: PERFECTION Although a lender has an attached security interest by meeting the three conditions necessary for attachment, there may be other creditors with claims against the same property. In most cases, the lender wants a claim that is superior to all others. to achieve priority against third-party claims, the lender must perfect its security interest before any other lender takes and perfects a security interest in the same collateral. Your priority position determines whether you will have a senior or junior right to collateral as related to rights of other lenders. Methods of perfection include: Perfection by possession (possessory liens): The easiest, simplest, and most effective way to perfect a security interest is by possession. The borrower or third-party grantor of a security interest delivers the collateral to you and you hold the collateral until the loan is repaid. Perfection by filing (UCC filings): Article 9 of the Uniform Commercial Code (UCC) specifies the method for giving notice of a security interest. This entails filing financing statements in one or more public offices. Perfection by compliance with other statutes: For some types of collateral, statutes other than the UCC require special filing methods. For example, the statute may require compliance with a certificate of title law. Temporary perfection: Some types of collateral involve automatic perfection when the security interest attaches to the collateral. But the automatic perfection expires after a period of time. Then, unless the security interest is perfected by some other method, perfection lapses. CRC US Body of Knowledge See the UCC Collateral Perfection Chart for a summary of UCC rules. DIMENSION 6 - 99 The UCC sets forth complex rules for establishing priorities for many different applications. The rule most applicable for documentation purposes is the one that governs conflicting security interests in the same collateral. In general, in these situations the first to file or perfect rule applies. UCC 9-322 (a) (1) states: –– “Conflicting perfected security interests and agricultural liens rank according to priority in time of filing or perfection. Priority dates from the earlier of the time a filing covering the collateral is first made or the security interest or agricultural lien is first perfected, if there is no period thereafter when there is neither filing nor perfection.” Here are some examples of the application of the general priority rule. –– Example 1. A files against X (debtor) on February 1. B files against X on March 1. B makes a non-purchase money advance against certain collateral on April 1. A makes an advance against the same collateral on May 1. A has priority even though B’s advance was made earlier and was perfected when made. A filed first. –– Example 2. A and B make non-purchase money advances against the same collateral. The collateral is in the debtor’s possession and neither interest is perfected when the second advance is made. Whichever secured party first perfects its interest (by taking possession of the collateral or by filing) will take priority. –– Example 3. Lender A has perfected a security interest in the inventory of a diamond merchant by filing on March 4. On April 15 of the same year, Lender B takes possession of ten diamonds from the merchant’s inventory. Lender A has priority because it perfected first. In this case, Lender B’s possession does not gain priority for Lender B because Lender A has perfected first by filing. You should perfect your security interest as quickly as possible in order to obtain a first priority position. When perfection is by filing, this is best accomplished by filing prior to the closing. NOTES: Dimension 6 // Identify Repayment Sources and Appropriately Structure and Document Credit Exposures for.. RULES FOR ESTABLISHING PRIORITY BETWEEN TWO SECURED PARTIES DIMENSION 6 - 100 NOTES: IMPROVING PRIORITY POSITION The collateral offered by the borrower may already be subject to the security interest of another creditor. Most likely the other creditor will have priority over your interest. In such an event, you should attempt to obtain a waiver or a subordination of the other creditor’s rights. If you are refinancing a prior debt held by another creditor, you should require the other creditor to terminate any existing collateral filings. This type of transaction frequently results in a timing issue, that is, the prior creditor will not want to terminate its filings until it has been paid and you will not want to advance funds until you are certain that the prior creditor has terminated its filings. One method to resolve this issue is to have the prior creditor represented at the closing. The prior creditor can then receive the payout of its credit at the same time you receive the prior creditor’s termination statements. If the prior creditor is not available at closing and the transaction is a large one, the closing documents could be placed in escrow with suitable instructions to the escrow agent. PURCHASE MONEY SECURITY INTERESTS CRC US Body of Knowledge A purchase money security interest exists when the proceeds of the secured loan are used to acquire the collateral. The rules on purchase money security interests are an exception from the first to file rule. As a purchase-money secured party, you have a special priority over other parties who may have an earlier perfected interest in the borrower’s after-acquired property. This only applies to property financed by you and named on a properly filed UCC financing statement. If you have a security interest in collateral other than inventory, and can prove that you financed its purchase and have followed the UCC perfection rules for purchase money security interests, you have priority over a conflicting security interest in the same collateral. You must perfect the purchase money security interest by filing a UCC-1 financing statement either before or within 20 days after the debtor receives possession of the collateral. You should obtain and keep proof that your funds were used to purchase the goods, preferably by making direct payment to the seller of the collateral, as well as proof of the delivery date for the goods. The rule applying to inventory is different. You have priority over the conflicting security interest provided you perfect your security interest by filing a UCC-1 financing statement and giving written notice to known or filed secured parties before any of the inventory is delivered to the debtor. The notice must state that you have acquired or will acquire a purchase money security interest in the inventory and identify it by item or type. You must also be able to prove that you financed the inventory purchase. DIMENSION 6 - 101 In some states, a landlord has an automatic lien for unpaid rents against the property of the tenant that is located on the rented premises. The landlord’s lien may have precedence over a previously granted security interest. Even in states where statutes do not provide for a landlord’s lien, the lease may give the landlord an interest in the property to satisfy unpaid rents. You should obtain a waiver, disclaimer, or subordination of the interest of the landlord in the property of the tenant to permit repossession of the collateral in the event of default. UCC DEFINITIONS Terms used in the UCC have special definitions that are technical and complicated but are essential to compliance with provisions of the UCC with regard to the granting, attaching, and perfection of security interests. Included are the following: Account: Right to payment of a monetary obligation for any of the following: –– Property that has been or is to be sold, leased, licensed, assigned, or otherwise disposed of. –– Services rendered or to be rendered. –– A policy of insurance issued or to be issued (a right to premiums). –– A secondary obligation incurred or to be incurred. –– Energy provided or to be provided. –– The use or hire of a vessel under a charter or other contract. –– A right to payment arising out of the use of a credit or charge card or information contained on or for use with the card. –– A right to payment as winnings in a lottery or other game of chance operated or sponsored by a governmental unit or by a person licensed or authorized to operate the game by a governmental unit. NOTES: Dimension 6 // Identify Repayment Sources and Appropriately Structure and Document Credit Exposures for.. LANDLORD WAIVERS DIMENSION 6 - 102 NOTES: Account does not include: –– Rights to payment evidenced by chattel paper or an instrument. –– Commercial tort claims. –– Deposit accounts. –– Investment property. –– Letter-of-credit rights. –– Rights to payment for money or funds advanced or sold. Account debtor: Person obligated on an account, chattel paper, or general intangible. Account debtor does not include persons obligated to pay a negotiable instrument, even if the instrument constitutes part of chattel paper. Agricultural lien: A lien on farm products that is not given voluntarily by the debtor. The lien is created by a statute in favor of a person that either furnished goods or services to a debtor or leased real property to a debtor, in either case in connection with the debtor’s farming operations. The lien must be non-possessory. The obligation secured must be for the goods, services, or rent. CRC US Body of Knowledge Authenticate: To sign, execute, or otherwise adopt a symbol or encrypt or similarly process a record in whole or part, with the intent to identify the person and adopt or accept a record. Use of authentication eliminates the requirement for a debtor’s signature on a UCC-1 financing statement. The debtor’s signature on a security agreement would provide authentication for the financing statement. Chattel paper: A record that evidences a monetary obligation as well as a security interest in specific goods, a security interest in specific goods and software used in the goods or a lease of specific goods. Examples would include equipment leases, conditional sales contracts (dealer paper), and promissory notes when the notes are secured by a security agreement covering goods or goods and software used in the goods. The chattel paper can be either tangible chattel paper (written chattel paper) or electronic chattel paper. Commercial tort claim: A claim made for money damages from a person who has committed a wrongful act in a commercial scenario. All tort claims made by an organization are commercial tort claims. A tort claim by an individual is a commercial tort claim if it arose in the course of the claimant’s business or profession. It does not include damages for personal injury or death of an individual. DIMENSION 6 - 103 Consignment: A transaction, regardless of its form, in which a person delivers goods to a merchant for the purpose of sale and: –– The merchant: 1) deals in goods of that kind under a name other than the name of the person making delivery; 2) is not an auctioneer; and 3) is not generally known by its creditors to be substantially engaged in selling the goods of others. –– With respect to each delivery, the aggregate value of the goods is $1,000 or more at the time of delivery. –– The goods are not consumer goods immediately before delivery. –– The transaction does not create a security interest that secures an obligation. Consignor: A person who delivers goods to a consignee in a consignment. Continuation statement: An amendment of a financing statement which: –– Identifies, by its file number, the initial financing statement to which it relates, and –– Indicates that it is a continuation statement for, or filed to continue the effectiveness of the identified financing statement. Control agreement: An agreement between a lender and the holder of a depositary account or investment account owned by a potential borrower from the lender. In the control agreement, the holder of the account agrees to honor the lender’s orders with regard to disposition of property in the account. Debtor: A debtor is: –– A person having an interest, other than a security interest or other lien, in the collateral, whether or not the person is an obligor. –– A seller of accounts, chattel paper, payment intangibles, or promissory notes; or –– A consignee. NOTES: Dimension 6 // Identify Repayment Sources and Appropriately Structure and Document Credit Exposures for.. Consignee: A merchant to which goods are delivered in a consignment. DIMENSION 6 - 104 NOTES: Deposit account: A demand, time, savings, passbook or similar account maintained with a bank. The term does not include investment property or accounts evidenced by an instrument. Bank means an organization that is engaged in the business of banking and includes savings banks, savings and loan associations, credit unions, and trust companies. Document: A document of title, including bills of lading and warehouse receipts. Electronic chattel paper: Chattel paper that is stored in an electronic medium. Equipment: Goods other than inventory, farm products, or consumer goods used in the operation of a business. Farming operation: Raising, cultivating, propagating, fattening, grazing, or any other farming, livestock, or aquacultural operation. Farm products: Crops and livestock with which the debtor is engaged in a farming operation. Also included are aquatic goods whether crops or livestock. Products that have been subjected to a manufacturing process cease being farm products even in the hands of the farmer. File number: The number assigned to an initial financing statement. Filing office: The office designated as the place to file a financing statement. Financing statement: A record or records composed of an initial financing statement and any filed record relating to the initial financing statement. CRC US Body of Knowledge Fixtures: Goods that have become so related to particular real property that an interest in them arises under real estate law. General intangible: Any type of asset that does not fall within the definition of any other collateral category. Examples include patents, copyrights, the right to a tax refund, and a loan not evidenced by an instrument. Good faith: Honesty in fact and the observance of reasonable commercial standards of fair dealing. Goods: All things that are movable when a security interest attaches. DIMENSION 6 - 105 Instrument: A negotiable instrument or any other writing that evidences a right to the payment of a monetary obligation and is normally transferred by delivery with any necessary endorsement or assignment. The definition does not include investment property, letters of credit or writings that evidence a right to payment arising out of the use of a credit or charge card or information contained on or for use with the card. A promissory note is one type of instrument. Inventory: Goods that are held for sale or lease; that are being leased by a lessor; that are furnished or to be furnished under a contract of service; or that are raw materials, work in process, or materials used or consumed in a business. Investment property: A security, whether certificated or uncertificated, security entitlement, securities account, commodity contract, or commodity account. Jurisdiction of organization: The jurisdiction under whose law the registered organization is organized. Letter-of-credit right: A right to payment or performance under a letter of credit. It does not include the right of a beneficiary to demand payment or performance and is not the same as becoming a transferee of a letter of credit. Lien creditor: A lien creditor is: –– A creditor that has acquired a lien on the property involved by attachment, levy or the like. –– An assignee for benefit of creditors from the time of assignment. –– A trustee in bankruptcy from the date of the filing of the petition, or –– A receiver in equity from the time of appointment. Mortgage: A consensual interest in real property, including fixtures, which secures payment or performance of an obligation. NOTES: Dimension 6 // Identify Repayment Sources and Appropriately Structure and Document Credit Exposures for.. Health-care-insurance receivable: An interest in or claim under a policy of insurance that is a right to payment of a monetary obligation for health-care goods or services provided. The UCC permits assignment by or to a health-care provider of a health-careinsurance receivable and any subsequent assignment by the healthcare provider of the right to payment. DIMENSION 6 - 106 NOTES: Obligor: A person that, with respect to an obligation secured by a security interest in or an agricultural lien on the collateral, 1) owes payment or other performance of the obligation, 2) has provided property other than the collateral to secure payment or other performance of the obligation, or 3) is otherwise accountable in whole or in part for payment or other performance of the obligation. Payment intangible: A general intangible under which the account debtor’s principal obligation is a monetary obligation. Registered organization: An organization organized solely under the law of a single state or the United States and as to which the state or the United States must maintain a public record showing the organization to have been organized. Secured party: A secured party is: –– A person in whose favor a security interest is created or provided for under a security agreement, whether or not any obligation to be secured is outstanding. –– A person that holds an agricultural lien. –– A consignor. –– A person to which accounts, chattel paper, payment intangibles, or promissory notes have been sold. –– A trustee, indenture trustee, agent, collateral agent, or other representative in whose favor a security interest or agricultural lien is created or provided for, or –– A person that holds a security interest otherwise arising under the Uniform Commercial Code. CRC US Body of Knowledge Security: An obligation of an issuer or a share, participation, or other interest in an issuer or in property or an enterprise of an issuer: –– Which is represented by a security certificate in bearer or registered form, or the transfer of which may be registered upon books maintained for that purpose by or on behalf of the issuer. –– Which is one of a class or series or by its terms is divisible into a class or series of shares, participations, interests, or obligation, and –– Which: (A) is, or is of a type, dealt in or traded on securities exchanges or securities markets; or (B) is a medium for investment and by its terms expressly provides that it is a security governed by this article. DIMENSION 6 - 107 Security agreement: An agreement that creates or provides for a security interest. Security entitlement: The rights and property interest of an entitlement holder with respect to a financial asset. Security interest: An interest in personal property or fixtures that secures payment or performance of an obligation. Securities intermediary: A clearing corporation, or a person, including a bank or broker, that in the ordinary course of its business maintains securities accounts for others and is acting in that capacity Uncertificated security: A security that is not represented by a certificate. UCC COLLATERAL PERFECTION CHART TYPE OF COLLATERAL PERFECTION METHOD Accounts File a UCC-1 financing statement. Agricultural liens File a UCC-1 financing statement. Chattel paper Take possession or file a UCC-1 financing statement. Possession is always preferred. Chattel left in the possession of a debtor can be sold to a buyer who is unaware that the purchase violates the rights of the secured party and who would take the chattel paper free of the security interest. Commercial tort claims File a UCC-1 financing statement.. Deposit accounts Establish control over the account. If the account is with your institution, control is automatic. If the account is with another institution, enter into a control agreement with that institution. If a control agreement cannot be obtained, your institution can acquire control by becoming a customer of the depository institution with respect to the deposit account. Documents Take possession or file a UCC-1 financing statement. Possession is preferred. Electronic chattel paper Either file a UCC-1 financing statement or establish control over the electronic chattel paper. Control is established if the record comprising the chattel paper: (a) consists of a single authoritative copy which is unique, identifiable, and, generally, unalterable; (b) identifies the secured party as the assignee; (c) is communicated to and maintained by the secured party or its designated custodian; and (d) can be revised to add or change an identified assignee only with the participation of the secured party. Dimension 6 // Identify Repayment Sources and Appropriately Structure and Document Credit Exposures for.. Security certificate: A certificate representing a security. DIMENSION 6 - 108 CRC US Body of Knowledge TYPE OF COLLATERAL PERFECTION METHOD Equipment File a UCC-1 financing statement or take possession. Farm products File a UCC-1 financing statement or take possession. In addition, file an appropriate effective financing statement under the state’s central filing system for farm products or notify potential farm product buyers by letter. Fixtures File an appropriate financing statement as required by the state in which the fixtures are located. The filing may be included in mortgage or deed of trust. General intangibles File a UCC-1 financing statement. Health-care receivables If transferred to the provider of the services, perfection is automatic. Otherwise file a UCC-1 financing statement. Instruments Take possession or file a UCC-1 financing statement. Possession is always preferred. Instruments left in the possession of a debtor can be sold to a buyer who is unaware of the security interest and would not be subject to it. Inventory File a UCC-1 financing statement or take possession. Investment property Take possession, establish control over the investment property by entering into a control agreement with the securities intermediary and the borrower or file a UCC-1 financing statement. Possession or a control agreement are preferred because they always have priority over a filing whenever the filing was done. Letter of credit rights Establish control over the letter of credit rights by obtaining the consent to the assignment of the issuer or any nominated person, such as a confirming or negotiating bank. The consent of all such persons should be obtained. Possessory Liens, UCC Filings Money Take possession. Payment intangibles File a UCC-1 financing statement. Note: This chart assumes that you are doing business in a state that has adopted the new UCC Article 9 and that your debtor was organized in a state that has adopted the new UCC Article 9. If either is not true, you will have to refer to the then current UCC Article 9 in your state and/or the state where the debtor was organized to determine how to perfect a security interest. Check with your legal counsel. DIMENSION 6 - 109 TYPES OF COLLATERAL PERFECTED BY POSSESSION Types of collateral in which security interests are perfected by possession include goods and other types of collateral that are represented by a writing (piece of paper) whose delivery serves to transfer the claim. These include: Chattel paper such as conditional sales contracts and leases. Documents such as bills of lading and warehouse receipts. Goods (for goods such as equipment and inventory, possession is not a practical way to accomplish perfection, hence, a UCC-1 financing statement is usually filed for such collateral). Instrument such as promissory notes. investment property, including stocks and bonds, if certificated. Money. Negotiable documents, such as promissory notes. Purely intangible collateral cannot be possessed and a security interest in such collateral may only be perfected by filing or automatic perfection, in some instances. Types of intangible collateral include accounts, patent rights, copyrights, and general intangibles. ACTUAL POSSESSION When perfection is by actual possession, the secured party physically holds the collateral. The stocks, bonds, chattel paper, or notes pledged have been delivered and are in your collateral vault. TIME OF PERFECTION BY POSSESSION The time when perfection by possession occurs depends upon certain conditions: A security interest is perfected from the time possession is taken without relation to the time of attachment and continues as long as possession is retained. If the secured party temporarily releases such collateral to the debtor, the security interest remains perfected for a temporary 21-day period without filing or repossession. NOTES: Dimension 6 // Identify Repayment Sources and Appropriately Structure and Document Credit Exposures for.. PERFECTION BY POSSESSION