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What is a perfected lien and lien priority?

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The security interest of a creditor (lender/lessor) in personal property is perfected upon the filing of the financing statement with the appropriate authorities.  Lien perfection is the process by which a lender files notice of a lien with the appropriate recording office thereby giving legal public notice of the security interest or mortgage of the secured party.  The security interest in collateral proceeds is perfected when the lien in the underlying asset is perfected.

Revised Article 9 Methods of Perfection
Collateral Type Filing Control Possession Other
Letter of Credit Rights X
Commercial Deposit Account X
Electronic Chattel Paper X X
Investment Property X X
Instruments X X
Sale of Promissory Notes X Automatic
Source: Vedder Price

The order in which creditors are paid upon liquidation of a debtor’s assets is the priority of lien, which is generally in the chronological order of the perfection of the liens.  Once a lien is perfected, it is made legally enforceable and any subsequent claim on that asset is given a junior status.

A security interest is perfected upon attachment.  An attachment is a perfected lien, which makes the security interest in property complete and legally enforceable as of the date it is perfected, it encumbering real and personal property.

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