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Legal definition of Secured Transactions and attachment requirements

Updated on April 4, 2013

A secured transaction is one that is made between loaner and debtor. Unlike a regular transaction, a secured one is one in which there is collateral attached to the loan. Securing collateral to a loan can help guarantee the loaners’ repayment of money. In the event of a bankruptcy, secured loans with collateral have a much better chance of getting paid off then their unsecured counter parts.

To effectively attach collateral to create a security interest, several requirements must be met. Firstly, the collateral must be in the possession of the secured party or there must be a written security agreement describing the collateral and signed by the debtor (Miller and Hollowell, 2011). Secondly, the secured party must give value to the debtor. This is usually done in the form of a loan or something else of value. Lastly, the debtor must have legal right to the collateral property to use it for securing the loan.

To make the collateral effective as a security interest attachment, the security agreement is used. To make the security agreement effective, the agreement must be signed by the debtor, it must contain a description of the collateral that is accurate.

Once the secured agreement is deemed effective and the requirements are all met, an attachment is made to collateral by the loaning party, ensuring legal rights to it if the loan terms are found to be broken.

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