What happens to a perfected security interest when collateral is sold?

When collateral subject to a perfected security interest is sold, the security interest generally continues to exist and attaches to the proceeds of the sale, as long as it is not released by the creditor. This is consistent with the UCC's approach to secured transactions, where a perfected security interest is designed to protect the creditor's rights even if the collateral changes hands.

In most cases, the secured party retains their rights to the collateral, which includes any proceeds from the sale, unless the security interest is explicitly released or there is a contrary agreement. This ability to follow the collateral is a fundamental principle of secured transactions, ensuring that the creditor's interest remains intact despite the transfer of ownership of the physical asset.

In contrast, options suggesting that the interest is nullified or must be re-perfected do not align with UCC provisions, as a perfected interest typically continues automatically under these circumstances. Additionally, the idea that the security interest becomes subordinate to the buyers does not reflect the primary principle of creditors' rights in secured transactions; a secured party's interest maintains its priority unless altered by specific situations such as buyer in the ordinary course rules.