Chattel Mortgage

• Chattel mortgages apply to tangible and moveable pieces of property, as opposed to real estate. Under a chattel mortgage, the borrower sought money from a lender to purchase a tangible good. The lender gave the money necessary to make the purchase to the buyer, but also took a security interest in the property to secure payment on the loan. According to Nolo, a legal information website, the arrangement was essentially a mortgage that involved something other than land.
  
  

Example

• Eco-friendly John wants to by a new hybrid vehicle, but his credit stinks and doesn't want to deal with a professional lender. He asks his wealthy friend Moneybags for a loan. Moneybags, wary of John's financial trouble, requires John to pledge the hybrid car as collateral to secure the loan. John agrees. If John fails to repay the loan, Moneybags can seek to obtain John's new hybrid car in satisfaction of the debt.
  
  

Uniform Commercial Code

• Chattel mortgage arrangements still exist but the provisions in the Uniform Commercial Code have replaced the former laws regarding chattel mortgages. UCC Article 9 controls matters involving security interests, including those created by chattel mortgages. Each state has adopted some form of the UCC, but readers should check the relevant state laws for specifics.
  
  

Issues

• A security agreement can be a potentially complex matter. For example, problems may arise if multiple creditors claim an interest in the same piece of collateral. Additionally, if the debtor files for bankruptcy, the lender may or may not be a secured creditor depending on whether she complied with the provisions in the UCC. Readers should seek independent legal advice before continuing.