What defines the priority of secured interests?

The priority of secured interests is primarily determined by the perfection of the security interest. Perfection is the legal process that gives a secured party priority over claims against the same collateral from other parties. When a security interest is perfected, it becomes enforceable against third parties, which establishes the secured party's rights and determines their priority in the event of default or bankruptcy.

Perfection can be achieved through various methods, such as filing a financing statement, taking possession of the collateral, or obtaining control over the collateral, depending on the type of collateral involved. The date of perfection plays a critical role: generally, the first secured party to perfect its interest will have priority over other secured parties with interests in the same collateral.

While the date of the security agreement, the identity of the secured party, and the value of the collateral may influence various aspects of secured transactions, they do not directly define the priority of secured interests as effectively as perfection does. This is why the perfection of the security interest is the correct choice for establishing priority among competing secured claims.