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1.4.4 Does the Creditor Have an Enforceable Security Interest?

Before there can be any repossession, there must be a valid, enforceable security interest in the collateral. Article 9 sets forth the requirements for the creation of an enforceable security interest, and places some limits on what can be taken as collateral. Federal law and other state laws place additional limits on the types of security interests that creditors can take.

  • • Is there a security agreement that clearly gives the creditor a security interest? A bill of sale, a notation on a certificate of title, or a financing statement may be insufficient. See § 3.2.2, infra. Merely handing over possession of a vehicle’s title does not provide a security interest in the vehicle itself. See § 3.8.7, infra.
  • • Was the security interest given by the person who owned or had rights in the collateral? If not, it may be unenforceable. See § 3.2.6, infra.
  • • Did the creditor purport to take a non-purchase-money security interest in items such as household goods, contrary to the Federal Trade Commission’s Credit Practices Rule, or in items in which such an interest is prohibited by state law? See § 3.3, infra.
  • • Is the claimed security interest based on an antecedent debt or future advance clause, under which the collateral secures future or preexisting debts? Courts often find such clauses unenforceable. See § 3.6, infra.
  • • Is the security interest based on a series of purchases from the same merchant? If so, state and federal law may restrict the security interest, or require the creditor to apply payments in a way that releases the security interest on earlier-purchased items. See § 3.7, infra.
  • • If a refinancing is involved, has the creditor preserved the original security interest? See § 3.5, infra.
  • • Did the creditor properly disclose the security interest (including any security interest it continued after a refinancing) under the Truth in Lending Act? See §§ 3.2.7.4, 3.6.5, 3.10.3, infra.