What is the status of a perfected security interest when collateral is sold?

A perfected security interest is a legal claim on collateral that has been properly established to secure a debt. When collateral is sold, the status of the perfected security interest typically follows the property unless the security interest has been specifically released. This principle is grounded in secured transactions law, particularly the Uniform Commercial Code (UCC), which outlines how security interests are maintained through various transactions.

When collateral is sold to a new owner, the security interest remains attached to the collateral, and the new owner takes it subject to that interest. As a result, if the seller had a perfected security interest in the collateral before the sale, the buyer assumes the property with that same security interest intact. This means the original creditor retains an enforceable claim against the collateral in the hands of the new owner.

This concept challenges the notion that such an interest would be nullified or require re-perfection upon transfer. The security interest is not automatically eliminated by the sale; instead, it continues to exist, which protects the lender's rights to enforce their interest against the collateral, regardless of changes in ownership. This is an essential aspect of secured transactions, as it ensures that creditors can still perform their claims on the collateral, even as ownership changes hands.