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May 1, 2019Amanda Barrington
Does a Prior Perfected Secured Creditor Waive Its Priority By Failing to Take Action Before a Judgment Lien Creditor Garnishes the Collateral?
On December 31, 2018, the Court of Appeals of Texas for Eastland considered an issue of first impression for Texas. The issue was whether the holder of a prior perfected security interest waives its right to collateral by failing to take affirmative action prior to a junior creditor exercising rights on the same collateral. The Court held that a prior perfected security interest holder does not waive its senior security interest by failing to exercise elective remedies prior to a junior judgment creditor exercising foreclosure rights. The Court reasoned that a disposition by a junior creditor does not cut off a senior’s security interest, thus, the senior security interest is entitled to take possession of collateral from the junior secured party and conduct its own disposition. This was an issue of first impression in Texas, and the Court adopted its reasoning from the Oregon Court of Appeals