Purchasing a vehicle or easing a vehicle is one of the most often used UCC security agreements. The UCC code allows for protection of both parties to the transaction, the buyers and the sellers are both covered. There is a third party and that is the lender. In a car situation the title is actually held by the lender until the note is paid off. In a cash deal, the lender does not participate and the buyer and seller exchange what is called a clean title meaning that there are no lenders involved in the transaction.
When the cash transaction takes place the only document necessary is the title. In some states the DMV requires a Bill of Sale in order to assess that the Sales tax was properly applied. In all other cases in which a lender is involved, there are two Agreements signed. The first is a promissory note which is covered in the U.C.C. in Article 9 Secured Transaction section. This first transaction is an agreement between the lender and the buyer. The buyer agrees to pay the loan, including a set interest rate.
In agreeing to this agreement, the buyer agrees to two sellers, the amount that will go to the seller and is fixed and the amount that will go to the lender which may vary. The interest rates may be variable. Late charges and fees can be assessed. And in the case of default additional attorney fees and recovery charges can be assessed. As a purchaser it is important to understand the added charges that can be assessed to the lender in the case of late payments or default.
Default means that the bank can sue you personally. The car dealership would not be a part of this transaction since the loan is between the buyer and the lender. In the case of default a judgment can be taken which allows for an attachment of any real property that the buyer owns. These are assets such as a home, wages, or anything else that the buyer may own.
When purchasing a car the buyer will sign a Security Agreement which gives the bank a collateral interest in the vehicle. The Security Agreement gives the bank a collateral relationship with the vehicle. A Security Agreement means that the lender can repossess the collateral and then resell it to get their money. If the sale of the vehicle is less than what is owed, the Security Agreement gives the lender the right to sue the buyer for any deficiency .
In order to use the UCC to your best advantage, the dealer should help the buyer to look for the lowest interest rate that is possible. The dealer is familiar with many of the lenders and can offer many additional cost savings. It is an interest rate reduction that will be written into the lender note and will save the buyer quite a bit of money.
In the event of a default the U.C.C. is clear that the lender is in a position to recoup their funds. It is an important part of credit concerns to notify the lender if there is a problem making payments. The problem of repossession may be worked out ahead of time to help prevent the default. Lenders are pretty good for the most part in offerings scenarios that work well to get the borrower over a rough patch. However, the additional terms may incur additional charges to lengthen the note. This will be added on to the total amount due thereby increasing the original note.
References
Knowles, F. a. (2009). UCC Security Agreements. [online] http://www.fullertonlaw.com/construction-law-survival-manual/ucc-security-agreements.html. Accessed FEb 2016: Martindale Hubbell Law Firm.
