Definition

Noun: A legal right or claim granted to a lender over a borrower's property (collateral) to secure the repayment of a loan or the performance of an obligation. If the borrower defaults, the lender has the right to seize and sell the property to recover the debt.

Usage

A "security interest" is a core concept in secured transactions, particularly under laws like the Uniform Commercial Code (UCC). It is created by an agreement (a security agreement) and is often perfected by filing a public notice (a financing statement) to establish priority over other creditors.

Examples

• The bank required a security interest in the company's inventory as a condition for the business loan.
• When you finance a car, the lender holds a security interest in the vehicle's title until the loan is fully paid.
• The court ruled that the creditor's security interest in the equipment had priority over the claims of other unsecured lenders.

Advanced Usage

• Perfected Security Interest: A security interest that has been legally established against most other claimants, typically by filing a public notice. This gives the secured party a stronger legal position.
  • Example: By filing the UCC-1 form, the lender obtained a perfected security interest in the debtor's accounts receivable.
• Purchase-Money Security Interest (PMSI): A special type of security interest taken by a seller or lender to secure the price of the specific item being sold or financed.
  • Example: The appliance store retained a purchase-money security interest in the refrigerator it sold on credit.

Variants and Related Words

• Lien: A broader legal term for a charge or encumbrance on property to secure a debt. A security interest is a type of consensual lien.
• Charge (UK/Commonwealth Law): A term often used similarly to "security interest" in non-U.S. jurisdictions.
• Collateral: The specific property that is subject to the security interest.
• Secured Creditor: The party (lender) who holds the security interest.

Synonyms

• Encumbrance
• Pledge (in certain contexts)
• Security (in a general sense)

Related Phrases

• Grant a security interest: To formally create and give a security interest to a lender.
  • Example: The borrower agreed to grant a security interest in its commercial real estate.
• Secure an obligation: The primary function of a security interest.
  • Example: The loan was secured by a security interest in the artwork.

Noun

1. any interest in a property that secures the payment of an obligation