Secured transactions in the United States
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Secured transactions in the United States are an important part of the law and economy of the country. By allowing lenders to take a security interest on a collateral owned by a debtor's asset, the law provides lenders with a legal relief in case of default by the borrower. With such legal remedy available, lenders would therefore be able to lend capital at lower interest rates.
In all fifty states, article 9 of the Uniform Commercial Code (U.C.C.) governs secured transactions where security interests are taken on a personal property.1 It regulates creation and enforcement of security interests in movable property, intangible property, and fixtures. Transactions where security interests are taken on real property are regulated not by article 9, but by real property laws that vary among jurisdictions.
Security interests are particularly valuable in bankruptcy, because creditors who have security interests in a bankrupt debtor's estate take precedence over creditors who lack such interests (unsecured creditors) in the distribution of the debtor's assets.
[edit] Security in Business Lending
The Uniform Commercial Code establishes the system which allows lenders (such as banks) to make loans to businesses with various business assets (such as equipment) taken as collateral. The code covers nearly all types of collateral except for real estate. In real estate lending for example, a lender secures a home loan on a persons home by filing paperwork with the county where the property is located. In business lending, the lender secures the business loan under the rules of the uniform commercial code by filing paperwork with the Secretary of state in the state where the business is locate.
[edit] Notes
- Note 1: Even Louisiana, much of whose commercial law is based on Continental civil law, and not on the Anglo-American common law from which the UCC ultimately derives, has adopted Article 9 to govern its secured transactions. See La. Rev. Stat. Ann. tit. 10, §§ 9-101 to -710 (West 2004).
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