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Simple English definitions for legal terms
Secured transactions
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A quick definition of Secured transactions:
Secured transactions refer to a legal agreement between a borrower and a lender where the borrower agrees to give the lender something valuable, like a car or a house, as collateral in case they can't pay back the loan. This agreement is called a security agreement. If the borrower can't pay back the loan, the lender can take the collateral to recover the value of the loan. This type of agreement is governed by Article 9 of the Uniform Commercial Code, which is a set of laws that apply to most types of security agreements for personal property. The lender must follow certain procedures to make sure they have the right to take the collateral, and there are rules for resolving conflicts if there are multiple lenders with claims to the same collateral.
A more thorough explanation:
Secured transactions refer to the legal agreements between a borrower and a lender where the borrower agrees to provide collateral in exchange for a loan. The collateral serves as security for the lender in case the borrower defaults on the loan. This type of transaction is governed by Article 9 of the Uniform Commercial Code, which has been adopted by every state in the US.
One example of a secured transaction is when a person takes out a car loan. The car serves as collateral for the loan, and if the borrower fails to make payments, the lender can repossess the car to recover the value of the loan.
Another example is when a business takes out a loan and pledges its inventory as collateral. If the business defaults on the loan, the lender can take possession of the inventory to recover the value of the loan.
These examples illustrate how secured transactions work in practice. They show how lenders can protect themselves by requiring collateral from borrowers, and how borrowers can obtain loans by providing security for the lender.