To perfect a security interest is to obtain rights against the “world.” Thus, perfection is a crucial part of a secured transaction as it allows secured parties to have priority over competing parties with interests in the collateral. The first step in the process of perfection of a lien is “attachment” of the collateral, which then permits the creditor to “perfect” the security interest, which is the ultimate goal of ensuring that a security interest serves its intended purpose – properly securing the collateral to ensure its rights against other parties.
Lenders perfect their security interests to ensure that no other creditor, party in interest, or bankruptcy trustee will be able to claim the same collateral. The perfection of a security interest allows secured parties to have priority over other parties regarding the collateral. Thus, perfection is a crucial part of a secured transaction and typically achieved through the use of financing statements such as a UCC-1.
Typically, financial lending institutions such as banks prefer real estate as collateral. While fixed assets such as land or developed real estate are the preference, the bulk of capital stock of most investors consists of movable assets. Thus, moving forward in the 21st Century, movable collateral is an important tool for companies to gain access to finance and increase growth.
Congress, as a remedial response to industry-wide malfeasance by residential mortgage brokers, enacted the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) in 2008. Along with the Truth-In-Lending Act (TILA), both pieces of legislation regulate, and thus affect, mortgage loan originators.
Intellectual property rights are those associated with copyrights, trademarks, and patents. In the past, they were not property rights normally associated with secured transactions in a commercial context. However, these multifaceted rights are becoming increasingly utilized as a source of collateral for business transactions. Thus, commercial lenders have become more accepting of intellectual property such as patents, trademarks, and copyrights to secure obligations of prospective commercial customers. This raises the issue of the proper perfection of a security interest in intellectual property.
The normal course of events changes when a tenant chooses to assert its rights under the Bankruptcy Code. In this situation, commercial landlords must carefully proceed as they deal with a multitude of issues when tenants file for reorganization under the Bankruptcy Code.
Federal bankruptcy law uses special rules to treat the situation where a commercial landlord is faced with a bankruptcy filing by a tenant. Bankruptcy law does not treat the filing of a bankruptcy petition by a tenant as a default entitling the landlord to terminate the lease agreement, despite the fact that the lease may contain an ipso facto clause providing such. Ipso facto clauses are void under Title 11 (the “Bankruptcy Code”). Thus, a commercial landlord must maximize its available remedies to minimize its losses.
The Bankruptcy Code (Title 11) contains many special, mandatory provisions that deal with commercial leases. Because certain issues arise depending on whether or not the tenant decides to assert its rights under the Bankruptcy Code, commercial landlords must carefully proceed when dealing with tenant-debtors. Commercial landlords thus deal with a plethora of issues when their tenants file for protection under the federal bankruptcy laws.
In PGA West Residential Association, Inc. v. Hulven International, Inc., 2017 S.O.S. 4035, plaintiffs alleged that a property owner attempted to insulate the equity in his property from creditors by fraudulent means, specifically, naming a sham corporation as the beneficiary on a deed of trust. The lawsuit was filed more than seven years after the alleged fraudulent activity.
The California Court of Appeals has held that a general release is ineffective to release usury claims. In Hardwick v. Wilcox, 11 Cal.App.5th 975 (2017), James Hardwick, received several loans at an interest rate of approximately 12% from Albert Wilcox. The latter was unlicensed as a lender and had no other exemption from usury under California law.