There are two primary types of loan transactions. One type is considered an unsecured transaction and the other is classified as a secured transaction. When a loan is secured, there is more protection for the lender and there is a greater risk to the buyer if a default occurs.
It is important for debtors and creditors to understand secured transactions and to make an informed choice about whether the loan is right for their needs. The experienced Orange County Business Law Attorneys at Brown & Charbonneau, LLP can provide information about secured transactions and can review loan documents and paperwork.
Understanding a Secured Transaction
A secured transaction is a transaction in which a security interest is created. A security interest exists when there is collateral that guarantees a loan will be repaid. The lender has the security interest. If the debtor defaults, the lender may take the collateral and sell it to recover the value of the money borrowed.
Some common types of secured transactions include mortgage and car loans. When a debtor borrows money to purchase a car, the vehicle is the collateral for the loan. The creditor has a security interest in the vehicle and the creditor can repossess and sell the car if payments are not made. In a mortgage transaction, the home acts as the collateral and the lender has a security interest in the home. If the debtor defaults, the lender can foreclose and sell the home.
Secured transactions also occur frequently in business. A lender may provide a loan to a company to purchase equipment or commercial property and will have a security interest in the item purchased.
Whether for businesses or individuals, secured transactions involve contractual relationships between the parties who are entering into the transaction. As a general rule, these agreements must be in writing. However, there are exceptions if the security/property is pledged.
A pledged security agreement arises if a borrower actually transfers the collateral to the lender in exchange for the lender making the loan. An example of this would be a person who takes a loan from a pawnbroker and uses an engagement ring as collateral, leaving the ring with the pawnbroker until the debt is repaid.
Secured transactions involving personal property serving as security are typically governed by Article 9 of the Uniform Commercial Code (UCC). The UCC has been adopted in whole or in part throughout the United States, including in California. UCC Article 9 provides details on requirements for the creation of a valid security agreement and also provides information on how conflicts must be resolved if there are multiple security interests on the same piece of collateral.
The stakes are high when it comes to secured transactions, as expensive property can change hands in the event of a default. It is important for parties to these transactions to be represented by a qualified and experienced business law attorney.
Brown & Charbonneau, LLP is here to help, so call today to learn more about how our Irvine attorneys can assist you. Call: 714-505-3000
