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 April 6th, 2023
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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
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?
Related Topics
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- What is a Security Interest?
- Collateral
- Pledge as Collateral
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Uniform Commercial Code - Article 9
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- How is a security interest created in Assignment of Accounts Receivable and Contract Rights?
- How does one perfect a security interest by Possession of the collateral?
- How does on perfect a security interest by Control of collateral?
- How does one perfect a security interest by Filing a Financing Statement?
- What authorization is required to file a financing statement?
- Where is the appropriate office to file a financing statement?
- Defeasance
- Continuation Statement
- What is Priority of a security interest?
- What role does perfection play in establishing the Priority of a secured party?
- What are the common conflicts arising as to priority of a security interest?
- What is the priority of parties secured by common law and statutory liens?
- Lien - Definition
- Blanket Lien Definition
- Unperfected Lien
- Possessory Lien
- Non-Possessory Lien
- Tax Lien
- Mechanics Lien Definition
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- Cloud on Title
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