Business Definition for: perfected lien
perfected lien
security interest in collateral securing a debt protected from claims by third parties. To properly file a lien and take a security interest in property owned by the borrower, a lender must file the lien with the appropriate legal authority. Perfection of a lien on real estate is accomplished by recording the mortgage deed of trust in public land records of a municipality, such as a town clerk's office.
Perfecting a lien on stocks, bonds, or other assets owned by the borrower (known as
personal property
, as opposed to
real property
, or real estate) occurs when the lender files a
financing statement
listing the type of collateral securing the loan, and its location, in a designated filing place, generally the office of the Secretary of the State or a county recorder's office.
The lender's financing statement gives the lender priority status ahead of creditors filing subsequent liens, and is valid for a five-year period. The filing date is recorded, and the lender's documents are assigned a file number. These documents contain a detailed record of the collateral pledged or taken by the lender, establishing the lender's claim against assets by the borrower in event that the borrower defaults or goes bankrupt.
See also
continuation statement
,
preference
,
priority of lien
Related Terms:
amendment to a borrower's financing statement extending a lender's lien. A lender's financing statement granting a security interest in pledged collateral ordinarily expires after five years under the Uniform Commercial Code. It may be extended beyond that period by filing a continuation statement with the secretary of state and other public officials, as specified in the laws in the jurisdiction where the property is located.
transfer of property occurring within 90 days of a borrower's filing of a bankruptcy petition. A preference may be through a lien or security interest, or transfer of property to a creditor. An unsecured loan paid off within 90 days of bankruptcy also may be declared a preference. Bankruptcy trustees have the power to void preferences that impair the position of general creditors, or that undermine the stability of a business through transfer of an obligation.
order in which creditors are paid when the assets of a borrower are liquidated. Creditor priority is established under the first to file rule in the Uniform Commercial Code, and is summarized as follows: creditors holding a security interest in collateral are paid before unsecured creditors. As a general rule, holders of secured claims are paid in the order their claims were filed, starting with the earliest recorded lien.
For example, in a voluntary bankruptcy filed under Chapter 7 of the Bankruptcy Code, the debtor's assets are liquidated to meet unpaid obligations. In general, the bankruptcy estate is distributed as follows: (1) administrative costs, including court costs, trustee's fees, attorney's fees incurred by the debtor; (2) wage claims; (3) costs and expenses incurred by creditors; (4) federal, state and local tax claims; (5) debts having priority under federal law, i.e., claims of secured creditors, followed by claims of general creditors (unsecured creditors.) Creditors holding a perfected security interest are paid before other creditors.
Referring Terms:
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