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Possession Can Perfect Security Interest in Collateral VehicleWhen repossessing a property from a debtor, having a perfected security interest in the property helps you prevent other interested parties from gaining possession of it. According to the Uniform Commercial Code, a security interest is created when:

  • The property has been given value;
  • The debtor has a right to the property; and
  • The debtor agrees that the creditor shall attach a security interest to the property.

The security interest gives the creditor the right to possess the property if the debtor cannot meet the debt obligation, and perfecting the security interest gives the creditor priority over other parties who may claim ownership of the property. A recorded financing statement is a common means of perfecting a security interest. However, actual possession of the property can be sufficient with properties such as vehicles.

Recent Example

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Law Protects Servicemembers During Vehicle RepossessionBefore repossessing a vehicle, an auto lender must confirm whether the owner is a U.S. military member on active duty. The Servicemembers Civil Relief Act includes a section protecting active servicemembers who default on their auto loans. The auto lender must obtain a court order to repossess the vehicle. The order may include forms of financial relief not normally given to vehicle owners. Failing to comply with the SCRA can be a criminal offense.

Qualifications

The SCRA applies to people who are away from home while serving as:

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