How can a secured party gain priority over earlier security interests?

A secured party can gain priority over earlier security interests by taking additional steps to perfect a Purchase Money Security Interest (PMSI) within specific timelines. A PMSI arises when a lender provides financing that enables the borrower to purchase specific collateral. To qualify for the priority granted to a PMSI, the secured party must meet certain requirements, including perfecting the security interest within a defined period relative to the debtor's acquisition of the collateral.

In most cases, to achieve this priority, the secured party must file a financing statement or take possession of the collateral within a certain timeframe – typically within 20 days of the debtor taking possession of the collateral. By adhering to these perfection steps, the secured party ensures that their interest has priority over other claims that might have been established before the PMSI, even if those claims are recorded earlier. This is crucial in secured transactions, as the order of filing and perfection directly affects the priority of security interests in the event of a debtor’s bankruptcy or liquidation.

Other options do not provide valid mechanisms for gaining such priority, as they do not align with the established rules regarding the perfection of security interests under the Uniform Commercial Code.