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Perfection is the process of publicly establishing a security interest in collateral for purposes of gaining priority. Among competing security interests, a security that is perfected will prevail over other unperfected security interests (see U.C.C. § 9-322(a)). Typically, if there are multiple perfected security interests, the first interest perfected will prevail as long as the interest was continuously perfected. There are some exceptions to this rule for purchase-money security interests (PMSI) which when perfected may prevail over other earlier perfected security interests.

Perfection can be achieved through different methods depending on the type of collateral the security interest is attached to, with the most common methods being: filing, possession, and control.

  • Filing a financing statement with the Secretary of State’s Office or similar office is most commonly used to perfect an interest, but this option is not available for all types of collateral including money and deposit accounts.
  • Possession of some tangible goods, money, and other collateral is available under U.C.C. § 9-313 as a method of perfection.
  • Some types of goods can be perfected by gaining control of them including investment property and deposit accounts under U.C.C. § 9-314(a).
  • Some types of security interest can automatically be perfected including types of PMSI (see U.C.C. § 9-309). 

[Last updated in October of 2023 by the Wex Definitions Team]