What is Purchase-money security interest?
In short
A purchase-money security interest is taken by a seller, or a lender who finances the purchase, in the goods being bought. It gets special priority and, for consumer goods, is perfected automatically when it attaches.
Key takeaways
- Automatic perfection doesn't apply to motor vehicles, which need a notation on the title.
- A purchase-money interest perfected on time can take priority over an earlier perfected interest in the same goods.
- For inventory, the purchase-money lender must also notify earlier secured parties.
Where it's tested
REG: Debtor-Creditor & Bankruptcy — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A creditor takes a purchase money security interest in equipment and files a financing statement 15 days after the debtor receives possession. An earlier creditor had already perfected a security interest covering all of the debtor's equipment. Who has priority in the new equipment?