Borrowing against art

Types of security interest

In your jurisdiction what is the usual type of security interest taken against art, antiques and collectibles?

A lender commonly perfects a security interest in artwork that the borrower pledges as collateral by filing a UCC-1 financing statement with the applicable governmental authority, which in New York is the New York Department of State’s Division of Corporations.

Consumer loans

If the borrower borrowing against art assets in your jurisdiction qualifies as a consumer, does the loan automatically qualify as a consumer loan, and are there any exemptions allowing the lender to make a non-consumer loan to a private borrower?

Not applicable.

Register of security interests

Is there a public register where security interests over art, antiques or collectibles can be registered? What is the effect of registration? Is the security interest registered against the borrower or the art?

Yes, see question 18. Perfection by filing allows the borrower to retain possession of the work while the loan is outstanding. Financing statements are registered listing the secured party, the debtor (the borrower that pledges the collateral) and the collateral. The New York Department of State’s Division of Corporations maintains a database of financing statements that may be searched by the name of the debtor, the name of the secured party or the filing number.

Non-possessory security interests

Can the lender against art collateral perfect its security interest without taking physical possession of the art?

Yes, see questions 18 and 20.

Sale of collateral on default

If the borrower defaults on the loan, may the lender sell the collateral under the loan agreement, or must the lender seek permission from the courts?

The terms of the loan agreement typically set forth the rights and remedies that the lender has in the event of default and should be considered in the first instance. However, under section 9-610 of the NY UCC, after default, a secured party such as a lender may sell the collateral under commercially reasonable circumstances so long as the sale or disposition is in compliance with the notice provisions codified in section 9-611 of the NY UCC.

Ranking of creditors

Does the lender with a valid and perfected first-priority security interest over the art collateral take precedence over all other creditors?

A security interest can be subordinate to the rights of a person who became a lien creditor before the security interest was perfected. Under the NY UCC, the general rule is that the first to perfect a security interest has priority over other security interests. Certain exceptions exist; for example, a purchase money security interest can take priority over a conflicting perfected security interest on the ground that the person who provided the credit that makes the purchase of the good possible ought to have the first claim to that good. The rights of a secured lender under the NY UCC are complicated and a comprehensive statement regarding priority of creditors is beyond the scope of this survey; an attorney should be consulted regarding any questions about a particular lender-creditor scenario.