What is Secured Debt?
A Creditor’s Right to Reclaim Property
Secured debts are debts that are connected to a high-value material good (car, home, art) that can be used as collateral for payment of the debt.
Secured debt is generally agreed upon with a contract. In the case of a home loan, the creditor will ask the debtor to sign a mortgage or deed of trust that allows the creditor to maintain a secure interest (lien) against the property. A creditor can also be given a secure interest against other properties of high value like vehicles, stocks and investments, jewelry, art, etc. ln these cases, the lien is executed against the property through a security agreement.
Involuntary liens are secured interests placed against property by the state or federal government without any agreement necessary. Involuntary liens can also be executed by a court order (as in the case of bankruptcy.) Involuntary liens include real estate property taxes, delinquent income taxes, mechanic and landlord liens and court judgment liens.
A secured creditor can protect its loan by “perfecting” its lien. Perfecting a lien requires that the creditor put interested parties and other creditors on notice that they are holding a lien or secure interest in the property. This action can take place in a variety of ways depending on the types of property secured. They include:
Real Estate Property – Real Estate Property Creditors perfect their liens by filing a mortgage or deed of trust in the county where the property is located.
Vehicles – Vehicle Creditors perfect their liens by filing with the state motor vehicle department and notation on the certificate of title.
High-value Personal Property – High-value Personal Property Creditors perfect their liens by filing financing statements that identify the borrower, creditor and the collateral for the secured debt.