Legal Definitions - automatic perfection

Definition: Automatic perfection is the validation of a security interest against other creditors without the need for additional steps such as filing or taking possession of the collateral. This can occur through the self-operative perfection of a purchase-money security interest.

Example: If a lender provides financing for a car purchase, they automatically have a security interest in the car as collateral. This security interest is automatically perfected without the need for the lender to file any additional paperwork or take possession of the car. This is known as automatic perfection.

Explanation: The example illustrates how automatic perfection works in the context of a purchase-money security interest. The lender automatically has a perfected security interest in the car as soon as the loan is made, without the need for any additional steps. This provides the lender with priority over other creditors in the event of default by the borrower.