What is PMSI in lending?

According to UCC Article 9, a purchase money security interest (PMSI) is a special type of security interest that enables those who finance a debtor's acquisition of goods to acquire a first priority security interest in the purchase-money collateral.

What does PMSI mean in banking?

A purchase money security interest (PMSI) is an exception to the first-in-time rule. It gives secured creditors who meet its requirements a special advantage to jump ahead in line of other creditors with respect to certain collateral.

What is a PMSI example?

A car loan can be an example of a PMSI situation. A financial institution may agree to lend money to a borrower to finance the purchase of a new car. The bank can register its interest in the car as a PMSI because the loan funds are being directly used to buy the property they want a secured interest in.

What is the difference between a PMSI and security interest?

A security interest granted by a buyer of goods to the seller thereof that secures the deferred payment of the purchase price would generally be a PMSI, as would a security interest granted by a buyer to a lender that advances funds to the buyer to enable the buyer to buy goods from a seller to secure such advances.

How do you perfect a PMSI?

PMSI in Inventory

Perfect the PMSI by filing a financing statement naming the borrower as debtor and seller as secured party, and properly identifying the goods to be sold as the collateral.

Perform a UCC search in the appropriate jurisdiction to identify the borrower's secured creditors and their collateral.

What are the benefits of a PMSI?

Key Takeaways

A PMSI gives a lender the right to repossess any collateral used to secure a loan or financial transaction.
A PMSI gives a lender priority over other creditors in bankruptcy proceedings.

A PMSI is often used in commercial lending and by retailers who sell goods on credit.

What is the time limit for PMSI?

If it is part of their inventory: before they take possession of (or the security interest attached to) the property. if it isn't part of their inventory: within 15 days them taking possession of (or the security interest attached to) the property.

What are the elements of PMSI?

A PMSI obligation has two key requirements: (1) the secured party gives new value; and (2) the new value enable the debtor to acquire an interest in certain goods.

What is the grace period for PMSI?

The seller has a 20-day grace period for filing a financing statement following the attachment of the purchase money security interest in the collateral.

What are the elements of a PMSI?

A PMSI obligation has two key requirements: (1) the secured party gives new value; and (2) the new value enable the debtor to acquire an interest in certain goods.

Does a PMSI need to be registered?

Register in time

If it is part of their inventory: before they take possession of (or the security interest attached to) the property. if it isn't part of their inventory: within 15 days them taking possession of (or the security interest attached to) the property.

What is the effect of a PMSI?

If a secured party correctly complies with the registration requirements, a PMSI will take priority over all other security interests, including all interests that were registered prior to the PMSI.

How does a PMSI attach?

Automatically upon attachment.

A PMSI generally involves either: (1) a debtor buying an item on credit from a seller where the seller will be the secured party; or (2) a debtor using a loan from a bank directly to buy an item from a seller, where the bank will be the secured party.

What is the priority of PMSI?

If the PMSI collateral is sold and the proceeds deposited in a controlled deposit account, a party with a security interest in the deposit account would have priority to the funds. Note: A secured party does not lose PMSI protection because the underlying obligation is renewed, refinanced, or restructured.

What is the timeframe for PMSI?

Is a PMSI automatically perfected?

A PMSI is automatically perfected when the security agreement attaches to collateral that is consumer goods. Consumer goods are goods primarily for personal use by the purchaser rather than for business use or resale.