Secured Debt

A secured debt is a requirement that you are obliged to pay and is backed by an asset that a creditor or lender can recover if you fail to pay. This is also known as liens. This can be involuntary or voluntary liens. Examples are car loans or home mortgages; this you acquire voluntarily while property taxes are involuntarily acquired.

Secured Debt

Voluntary

Ordinarily, an agreement is granted for security interests. This is one of the conditions when you are about to acquire a home loan. Lenders in general prefer your signature on a mortgage of a deed of trust. This is an agreement that allows the lender a lien or security interest against your property.

You can allow a lender a security interest on your individual property. This is any property that you own or have an interest in. This includes: shares of stock, tools, inventory, furniture equipment, vehicles or even cash. The only way you allow a lien is with a security accord. It is done when you are about to apply for a new car loan, the lender will require you to sign a security agreement on the motor vehicle you are purchasing.

Involuntary

These are interests that you are obliged to pay on you property by the law. This requires no agreement. They are mostly imposed by federal or state government or even by court order. They include:

  • Landlord liens in by different states
  • Delinquent income taxes
  • Judgment liens
  • Mechanic liens
  • Real property

Perfection of liens

It refers to a legal phrase that creditors and involved parties are required to give notice of a security interest or lien. What one is required to perfect a lien is its applicability to the laws of the state and the property type. The following are examples:

Real property – lenders perfect liens by filing deeds of trust and mortgages in the area in which that specific property is found.

Motor vehicles –lenders generally perfect liens on trucks, motorcycles and cars. They do this by filing with the department of motor vehicles of that state end they get a certificate of title.

Tangible individual property – in tangible individual property there are security interests. They include materials, goods, tools, furniture, and equipment. These are perfected by the filing of financial statements. This is a document that classifies the collateral, borrower and lender. The financing statements do not require a signature to be effective in comparison with security accords.

If you have appended your signature to a security agreement for your collateral then the creditor will have to file the financing statement. As is the case of states the statements are signed by the Secretary of State. Many creditors will tell you that perfecting a lien is very crucial. You see borrowers can give several liens on the same property to a number of creditors.

An example is a home equity line of credit. This is junior to the mortgage that you initially took in order to purchase the house. A home equity line of credit is a junior lien can effectively move upwards in priority of the owner of the first mortgage if he or she fails to perfect the interest.

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