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Purchase Money Grace Period for Secured Parties - Explained

20-Day Period to Permanently Perfect a Purchase Money Security Interest

Written by Jason Gordon

Updated at September 26th, 2021

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Table of Contents

What is a purchase-money grace period for a purchase-money security interest in non-consumer goods?Discussion QuestionPractice QuestionAcademic Research

What is a purchase-money grace period for a purchase-money security interest in non-consumer goods?

Sellers of non-consumer goods receive temporary automatic perfection of an attached PMSI in the collateral sold. As the name applies, the security interest is temporary in nature. The seller has a 20-day grace period for filing a financing statement following the attachment of the purchase money security interest in the collateral. If the financing statement is filed during this 20-day period, the date of permanent perfection dates back to the date the security interest attached to the collateral. If the secured party fails to file a financing statement during the 20-day grace period, the temporary automatic perfection is lost.

Note: In that event the automatic PMSI is lost, the first secured party to perfect her security interest has priority in the collateral.

Next Article: Continued Perfection of a PMSI in Non-Consumer Goods Back to: SECURED TRANSACTIONS

Related Topics

  • Perfection of a security interest?
  • Perfecting a security interest in personal property?
  • UCC-1 Statement
  • Security interest in real property (land)?
  • Register of Deeds
  • Automatic Perfection of a security interest?
  • Purchase Money Security Interest (PMSI) in consumer goods?
  • Purchase Money Grace Period for a PMSI in non-consumer goods?
  • Continue perfection of a PMSI in non-consumer goods?
  • Temporary Automatic Perfection in Proceeds from the sale of goods?
  • How is a security interest created in Assignment of Accounts Receivable and Contract Rights?
  • Perfect a security interest by Possession of the collateral?
  • Perfect a security interest by Control of collateral?
  • Perfect a security interest by Filing a Financing Statement?
  • Authorization is required to file a financing statement?
  • Where to file a financing statement?
  • Defeasance
  • Continuation Statement

Discussion Question

Why do you think it is important to allow a grace period for a secured party to permanently perfect her security interest in non-consumer goods? Does this create a risk to any subsequent purchaser of the goods from the original purchaser? Should such risk be balanced against the interests of the secured party? Why or why not?

Practice Question

ABC Corp sells 123 Corp a piece of equipment. ABC finances the purchase over 12 months and attaches a purchase money security interest. What must ABC do to perfect its security interest?

Academic Research


purchase money grace period secured parties grace period purchase money

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