Security interest

It is sometimes said that there are only four types of consensual security right known to the law, namely pledge, lien, mortgage and charge. — Briggs J in Re Lehman Brothers International

Security can take many forms, depending on your legal system. We here are principally concerned with the common law. That is, the proper one. The overweening piece of statute here is the Law of Property Act 1925.

Types of security interest

There are:

• legal security interests — which involve transfer of the legal title to the secured property — a good example is a fully registered mortgage, and
• equitable security interests — where legal title is not transferred but the security holder acquires enough of a beneficial interest to take the asset out of the direct insolvency estate of the debtor. Good examples here are charges and assignments by way of security — by their nature are always equitable.

Legal security interests can (and often do) revert to equitable security interests if they fail for formal or procedural reasons.

Types of legal security interest

• Properly perfected Mortgages
• Liens in all their multifarious manifestations
• Pledges — though under English law a surprisingly rare beast.

Collateral: A Trick for young players

“Collateral” can be represented by, but is not the same as, a Template:Security interest.

A title transfer collateral arrangement where one party delivers collateral to another as credit support in the hopeful expectation that, at a later time, it will get an equivalent thing back, is not a legal security interest. It isn't a security interest at all, in fact. This is good, because there is none of this tedious mucking around with equity, formalities, registration and the fear and loathing of transactional lawyers that accompanies them. The worst that can do is issue veiled threats about the risk of recharacterisation, but this is poor form and really rather passive aggressive behaviour, in this correspondent’s opinion.

• Charge
• Law of Property Act 1925
• Nosferatu