Question

3. Melvin Davies obtains a $15,000 loan to buy household furniture.

Would the bank want a security interest?

What is the collateral?

Is the collateral possessory or nonpossessory?

How is the interest perfected and protected?

Answer 1

The bank may want security interest depends on the ability of the borrower to pay back the loan and the creditworthiness of the borrower

The collateral, in this case, is the furniture

The collateral may be taken over by the bank in order to recover the loan. Hence the collateral is possessory.

A collateral when that is prevented from being held in lien by other parties is protected. By registering the collateral, the security is perfected such that any other claims made on the same collateral is junior as compared to the claim for which it is perfected.