Security Agreement: Definition, Overview, Key Elements
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What is a Security Agreement?
A security agreement is a legal document that provides a lender a security interest in property or an asset that is promised as collateral. It gives the legal claim to the collateral to the creditor in case of a default by the borrower.
A transaction that uses a security agreement is often referred to as a ‘secured transaction’ where the grantor assigns the grantee (typically a lender) a secured interest in the collateral.
You can read more on security agreements here .
Terms Contained in a Security Agreement
A basic security agreement should have the description of the parties involved, the collateral and the statement of intention of providing security interest along with signatures from all parties. However, there are other terms that you might come across in a security agreement:
- Warranties : Warranties or covenants could include conditions agreed upon by both parties. For instance, common warranties include that the debtor must notify the secured party if the property’s value changes, the debtor must maintain the collateral in a good condition, and the property cannot be used in violation of federal, state or local laws.
- Collateral description: The security agreement should describe in detail the asset or property being held as collateral under the agreement. This should include specific listings, quantity of collateral, categories of collateral and description by type.
- Types of collateral: Collateral can be of various types such as inventory, farm products, accounts, stocks, or bonds, and this must be specified in the security agreement.
- Security interest : Security interest attachment must be used for completing security agreements. For this, an exchange of value must occur, the debtor should enjoy rights to the collateral and the debtor must be able to authenticate the security agreement through a signature. The security interest must also be perfected, which means that the secured party can claim promised collateral even in the event of debtor’s bankruptcy. This can be achieved through filing financing statements.
- Priority : In case of multiple parties, priority must be set for the secured parties involved. Generally, the first secured party is given priority. Priority can be achieved by filing a financing statement before other parties.
- Default : The security agreement should define what would be considered a default. These can be theft or improper use of collateral, failure to abide by other obligations, or evidence that provided collateral was false.
- Remedies : The remedies section can provide remedies for creditors to recover losses in case of default from the borrower.
You can read more on components of security agreements here .
Article 9 of the UCC: Security Agreements
Article 9 of the Uniform Commercial Code (UCC) is adopted by all fifty states. It governs secured transactions in which security interests are taken in personal property. Article 9 regulates the creation and enforcement of security interests in movable property, intangible property, and fixtures.
Transactions in which security interests are taken in real property are regulated by real property laws that vary among jurisdictions and not by Article 9. Article 9 regulates interests in personal property as collateral for any outstanding debt. Collateral could include any of the following:
- Inventory (such as raw materials held by business for sale or lease)
- Fixtures (items attached to a real property that if removed from it would require extensive reconstruction)
- Equipment (goods other than inventory)
- Vehicles (cars, buses, etc.)
- Stocks
- Bonds
- Personal possessions
- Accounts (such as promissory notes or insurance policy proceeds)
- Intangibles (such as software rights)
You can read more on Article 9 here .
Types of Security Agreements
Security agreements can be used to specify a collateral that is already in possession of the debtor, an intangible collateral or an after-acquired property.
- Collateral: Collateral can be of various types as discussed previously. A security agreement can be oral if the collateral is already in the physical possession of the secured party or the lender.
- Intangible Goods: Often collateral can be intangible, such as software rights or intellectual property. It is crucial to provide description of intangible collateral in writing.
- Floating Liens: Floating liens can appear in security agreements. These may not be in debtor’s possession at the time of the agreement’s commencement. It can involve acquired property, proceeds from a collateral’s disposition, and future advances.
- After-acquired property: An after-acquired property specification includes any new property acquired or bought after the agreement is signed. For instance, if the security agreement includes after-acquired property and the debtor promises all automobiles owned by the borrower, then even if the borrower buys new automobiles after signing the agreement, the new automobiles will be collateral.
You can read more on types of collateral here .
Image via Pexels by Shane
Why Businesses Use Security Agreements
Businesses depend on secured transactions for growth. Getting creditors to provide loans can be tough for individuals. Security interest provides reassurance to creditors that they will not suffer losses. The debtor also benefits from a low interest rate in presence of a collateral.
Security agreements provide a legally binding document outlining all terms under which debt can be secured and remedies if the debtor defaults. Businesses use this to ensure they do not suffer losses.
Are you wondering what a security agreement looks like? Here is a sample security agreement .
Security Agreement vs. Mortgage
A security agreement provides a legal title transfer from the borrower to the lender in while leaving equitable rights of the property with the debtor. The lender then provides the loan. Till the borrower is repaying the loan, they keep exclusive right of possession and the right of redemption which means that the lender cannot sell or alter the property. Once the repayment is completed, the debtor can have the collateral back. If the debtor defaults, the lender can gain all rights to the property, as laid under the security agreement.
Mortgage is different from a security agreement. A mortgage is used to secure the lender’s rights by placing a lien against the title of the property. Once all loan repayments have been made, the lien is removed. However, the buyer doesn’t own the property till all loan payments have been made. While mortgages provide security, similar to a security agreement, the property in question doesn’t already belong to the debtor.
You can read more on security agreements and mortgages here .
Get Help with a Security Agreement
Do you have any questions about a security agreement and want to speak to an expert? Post a project today on ContractsCounsel and receive bids from finance lawyers and security lawyers who specialize in security agreements.
See Real Security Agreement Projects
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Meet some of our Security Agreement Lawyers
Samuel R.
My career interests are to practice Transactional Corporate Law, including Business Start Up, as well as Real Estate Law, Estate Planning Law, and Intellectual Property Law. I am currently licensed in Arizona, Pennsylvania and Utah, after having moved to Phoenix from Philadelphia in September 2019. I currently serve as General Counsel for a bioengineering company. I handle everything from their Business Transactional Agreements, Private Placement Memorandums, and Corporate Structures to Intellectual Property Assignments, to Employment Law and Beach of Contract settlements. Responsibilities include writing and executing agreements, drafting court pleadings, court appearances, mergers and acquisitions, transactional documents, managing expert specialized legal counsel, legal research and anticipating unique legal issues that could impact the Company. Conducted an acquisition of an entire line of intellectual property from a competitor. In regards to other clients, I am primarily focused on transactional law for clients in a variety of industries including, but not limited to, real estate investment, property management, and e-commerce. Work is primarily centered around entity formation and corporate structure, corporate governance agreements, PPMs, opportunity zone tax incentives, and all kinds of business to business agreements. I have also recently gained experience with Estate Planning law, drafting numerous Estate Planning documents for people such as Wills, Powers of Attorney, Healthcare Directives, and Trusts. I was selected to the Super Lawyers Southwest Rising Stars list for 2024 - 2026. Each year no more than 2.5% of the attorneys in Arizona and New Mexico are selected to the Rising Stars. I am looking to further gain legal experience in these fields of law as well as expand my legal experience assisting business start ups, and also trademark registration and licensing.
"Everything went very quick, I am very satisfied with the results."
Dolan W.
You need a lawyer who's more than just knowledgeable – you need someone who's on your side. That's where I come in. I'll be there every step of the way, offering clear communication and proactive solutions. Whether you're starting a business or navigating a complex legal matter, I'll help you make informed decisions and achieve your goals. I also have drafted many templates to save you money. Just use this link - https://www.contractscounsel.com/client/lawyer-profile/3764#Templates Why Choose Me? I put you first I'm proactive I'm efficient I'm accessible
"Dolan is awesome! So responsive, quick, and knowledgeable. He really understood my project and explained everything."
Drew B.
Drew is an entrepreneurial business attorney with over twenty years of corporate, compliance and litigation experience. Drew currently has his own firm where he focuses on providing outsourced general counsel and compliance services (including mergers & acquisitions, collections, capital raising, real estate, business litigation, commercial contracts and employment matters). Drew has deep experience counseling clients in healthcare, medical device, pharmaceuticals, information technology, manufacturing, and services.
"Hired for a settlement contract to be written out in legal manner. Ammended contract as well to add clauses that we had not written.Efficient, professional. Said the time-frame would be about 4 business days and he did deliver on that in fact worked through the weekend and mlk day. Offered one final revision as well as a call to finalize language of contract. The final document delivery was more than we expand also he went above and beyond to deliver extra documents we may need. Would highly recommend."
Jimmy V.
Hello, I can help you with this project. I’m a semi-retired, long-time US attorney with substantial experience in business and corporate law. I help startups and small businesses prepare and file the documents necessary to set up corporations or LLCs.
"Jimmy did an excellent job drafting the documents I needed, would work with again!"
February 4, 2023
Joseph M.
ADMITTED TO PRACTICE LAW IN CALIFORNIA SINCE 1999. EXPERIENCED & RELIABLE, LITIGATION, LEGAL COUNSELING AND REPRESENTATION
February 9, 2023
Kandil O.
A business law practitioner by passion, I take pride in the perfection of my contracting Skills. Every piece of information I gather and spin together transforms to a legally binding document, providing great legal protection for start-ups and leading to eventual growth. I am a natural in law and entrepreneurship, making for a perfect blend.
February 11, 2023
Moxie M.
Lindsey has always been deeply invested in the power of knowledge; she was born and raised in Columbus, Ohio before making her way to Miami University for a dual Bachelor's degree. Afterward, Lindsey completed a Juris Doctor at Stetson University with an International Law concentration before earning a Health & Hospital law Certificate from Seton Hall School of Law. After graduating law school, Lindsey began her career as an associate at a Florida-based insurance litigation firm. She eventually transitioned to become a multi-year Rising Star in Employment Law by Super Lawyers as a labor and employment lawyer with Scott Wagner and Associates, supporting clients in Florida, California & Ohio with employment law matters. Her expertise covers counseling on workplace policies/handbooks; investigations into EEO discrimination/retaliation claims; wage disputes & wrongful terminations - equipping employees across multiple states for success in the ever-changing modern workforce landscape. Leveraging extensive knowledge of state/federal regulations gained from handling dozens of cases over many years, Lindsey has established herself as a leader in the field. Lindsey is a seasoned litigator, well-versed in the complexities of employer and employee disputes. She has represented clients on both sides during numerous mediations and provides an informed perspective when advocating for her clients' interests. She sharpened her dispute resolution skills by completing Harvard Law School's Negotiation Mediation course as part of their Executive Education Program as well as a Florida Circuit Civil Certified Mediator - making her qualified to mediate Circuit Civil cases in Florida as well as California and Ohio. Her breadth of knowledge provides valuable insight into the complexities each side faces while navigating their way through conflict mediation situations. With her varied expertise in the world of entertainment industry employment law, Lindsey has become a go-to source for Hollywood professionals, studios, and companies looking to make sure their legal considerations and entertainment contract law knowledge is up to date. From contract negotiations and employment advice to her outstanding knowledge of current regulations, she provides clients with everything they need for success both now and into the future. Lindsey dedicates her time and expertise to advancing the legal community. She proudly serves on the Executive Council for Florida Bar Association Labor and Employment Section, as well as with American Bar's Membership Outreach Committee in a leadership role. Lindsey is also an respected LA Magazine Editorial Board Member while Co-Chairing both LACBA CLE Event Dinner Committees - focusing on labor and employment law developments. Lindsey is passionate about providing accessible legal services to those in need. She serves on the Pro Bono Mediation Panel for the U.S Central District Court of California, volunteers as a mediator with California Lawyers for Arts and acts as Settlement Officer with Los Angeles Superior Court's ResolveLA program - all while donating her time towards resolving disputes through pro bono mediation at Equal Employment Opportunities Commission (EEOC). Lindsey is a globetrotter, an outdoor enthusiast, and dedicated sports fan all rolled into one. While splitting time between California, Florida and Ohio she has the best of three world - from hiking trails to family gatherings there's always something interesting on her horizon! Plus with photography as a hobby Lindsey enjoys capturing life’s precious moments so they can be treasured for years to come.
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