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Repossessions: 3.2.2.2 Agreement Must Specifically Grant the Security Interest

The agreement must specifically grant, create or provide for a security interest.35 Revised Article 9 defines a security agreement as “an agreement that creates or provides for a security interest.”36 This definition is essentially the same definition as was used in the former version of Article 9.37 Although a security interest is defined as one “securing performance of an obligation,”38 one court held that

Repossessions: 3.2.2.3 Is Truth in Lending Disclosure an Adequate Grant?

The federal Truth in Lending Act (TILA) requires that creditors disclose any security interest they take in a credit transaction.58 Creditors thus must comply with two separate requirements when they obtain a security interest: they must obtain from the consumer a written grant of the security interest, and they must then disclose that security interest to the consumer in a manner complying with TILA.

Repossessions: 3.2.3.1 Generally

The UCC requires that the written or electronic security agreement be authenticated by the debtor64 (although there is no UCC requirement that it be authenticated by the creditor).65 A signature is a type of “authentication,” but the term also includes electronic signatures and other similar methods.66

Repossessions: 3.2.3.2 What Is a Valid Authentication?

While requiring strict compliance with the rule that the security agreement must be signed or otherwise authenticated, Article 9 defines authenticate broadly to include not only traditional signatures but also electronic signatures and similar methods of identifying oneself and adopting or accepting a physical or electronic document.74 These methods include the use of symbols, encryption, or similar steps that are intended to identify oneself and adopt or accept a record.75 The definition of sign, a

Repossessions: 3.2.5 Creditor Must Give Value

A security interest does not attach until “value has been given.”84 The UCC definition of value is broad, including any consideration sufficient to support a simple contract, any commitment to provide credit in the future, and any security for a preexisting claim.85 The concept of value is broader than the contract concept of consideration.86

Repossessions: 3.2.6.1 The General Rule

A precondition to the creation of a valid security interest is that the party signing the security agreement must have rights in the collateral.90 A creditor cannot enforce a security interest in property if the debtor neither owns nor has an interest in that property.91

Repossessions: 3.2.6.2 Practical Implications

Issues as to ownership become even more pronounced when a creditor attempts to take a non-purchase-money security interest in various categories of personal property, such as stereos, sports equipment, or musical instruments. Questions arise as to which family member owns these items. The creditor cannot cure the problem by identifying the collateral as items that are owned by the signatory. The UCC requires that the collateral be identified so that a sheriff or repossessor knows which specific items to seize and which to leave alone.99

Repossessions: 3.2.6.3 What “Rights in the Collateral” Are Sufficient; Exceptions to the General Rule

The debtor need not have full ownership of the collateral.104 As long as the debtor has some rights in the collateral, an enforceable security interest may attach to those rights.105 However, if only one of the collateral’s two co-owners signs the security agreement, the creditor cannot foreclose on the interest of the other co-owner.106 The signing co-owner can only give an interest in whatever rights that signatory has in the collateral, not an i

Repossessions: 3.2.7.1 General Rule

UCC Article 9 requires that the security agreement describe the collateral.117 This description need not be specific, and is sufficient “if it reasonably identifies what is described.”118 However, it must “make possible the identification of the collateral.”119

Repossessions: 3.2.7.2 Relationship to Collateral’s Description in the Financing Statement

It is important to distinguish two questions: First, is a description of collateral in a security agreement sufficient identification to create a valid security interest? Second, is the description in a financing statement adequate to put other creditors on notice of a potential security interest? The security agreement signed by the consumer grants the security interest. The creditor can then insure its priority in that collateral as against other creditors by perfecting that security interest, such as by filing a financing statement that describes the collateral.

Repossessions: 3.2.7.3 When Identification of Collateral Is Accidentally Omitted

The requirement that the collateral be described in the security agreement is a strict one. An unintentional omission can prevent the security interest from being enforceable. Creditors can get into trouble by indicating in the security agreement that collateral is described in an attachment which, in fact, is not attached. This defeats the security interest in the intended collateral.158

Truth in Lending: 2.9.1 Introduction

Prior to Simplification, most states had enacted credit cost disclosure statutes. The interrelation of state and federal cost disclosure requirements created some confusion for both creditors and consumers. Some states had merely reproduced TILA in their state statutes.

Truth in Lending: 2.9.2 Exemptions

The Truth in Lending Act includes a mechanism by which a state can request that the CFPB exempt any class of credit transactions from TILA requirements.869 In deciding whether certain creditors or credit transactions are exempt from compliance with federal law, the CFPB must determine whether the state law is substantially similar to the requirements imposed under the Act.870 If the state-required disclosure is substantially the same as the disclosure required by the Act, and there is adequate p

Truth in Lending: 2.9.3.2 Meaning of Inconsistency

A state law is inconsistent if it requires a creditor to make disclosures or take actions that contradict the requirements of the federal TILA.903 A state law is contradictory if it requires the use of the state term to represent a different amount or a different meaning than the federal law, or if it requires the use of a term different from that required in the federal law to describe the same item.904 A state law is not contradictory, however, if it mandates one manner of disclosure where TIL

Truth in Lending: 2.9.3.5 Relationship Between HOEPA and AMTPA

Until 2011, states that wished to regulate abusive mortgages in a fashion similar to HOEPA could run into claims that another federal law, the Alternative Mortgage Transactions Parity Act (AMTPA)918 trumped the state’s ability to restrict balloon payments, variable rate loans, negative amortization, or prepayment penalties. AMTPA’s preemptive force applied to state institutions as well as federally chartered depositories.

Truth in Lending: 2.9.4.1 Generally

TILA does not preempt state laws that deal with issues not addressed in the Truth in Lending Act.923 Historically, most TILA preemption cases have addressed disclosure issues, which were the core of TILA’s requirements until later substantive protections on mortgage lending.

Truth in Lending: 2.9.4.2 Preemption Regarding Federally Chartered Financial Institutions

Apart from TILA’s narrow preemption standard, state power to require credit disclosures has been significantly limited with respect to federally-chartered financial institutions. Federal regulatory agencies have aggressively expanded the scope of federal preemption of a variety of state laws under the federal banking statutes.934 For example, in American Bankers Association v.