Town Loan Center agrees to loan Sara $1,500, accepting as collateral her car. They put their agreement in writing and sign it. Sara keeps possession of the car. Does Town Loan have an enforceable security interest? How can Town Loan let other creditors know of its interest in the car?
The three requirements for an enforceable security interest are a security agreement in writing (or the secured party's possession of the collateral), the creditor's giving something of value to the debtor, and the debtor's having rights in the collateral. Once these requirements are met, the interest attaches. A security interest is enforceable when at¬tachment occurs. Here, assuming the agreement includes a reasonably identifying description of the car, these requirements are met. (The re¬quirements for an effective, written secu¬rity agreement are (1) it must be signed by the debtor, (2) it must contain a description of the collateral, and (3) the description must reasonably identify the collateral.)
A creditor can put other creditors on notice by per¬fect¬ing its interest. Perfecting is ac¬com¬plished by filing a financing statement in the appro¬priate public of¬fice, or by taking possession of the collateral until the debtor repays the loan. In most states, filing is in a central office (of the state in which the debtor is located). For individual debtors, the place of filing is the state of the debtor's principal residence. (Filing is the most common means of perfec¬tion. Perfection of an interest in some types of collateral, such as negotia¬ble instruments, can only be accomplished by taking possession of the property, but that is not the situation in this question, which in¬volves a car as collateral that the debtor has retained.) Thus, Town Loan must file a fi¬nancing statement.
To be valid, a financing statement must include the names of the debtor and the creditor and describe the collat¬eral covered by the security agreement. To avoid problems arising from different descrip¬tions, a secured party can repeat the security agree¬ment's de¬scription in the financing statement or file the two together. The filing may be accom¬plished by a paper filing or by an electronic filing.
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