A transfer of some legal or equitable right in Personal Property as security for the payment of money or performance of some other act. Chattel mortgages have generally been superseded by other types of Secured Transactions under the Uniform Commercial Code (UCC), a body of law adopted by the states that governs commercial transactions.

The rights of the lender who gives a chattel mortgage are valid only against others who know or should know of the lender’s security interest in the property. Since the borrower possesses the property, others cannot realize that a chattel mortgage exists without notice. Each state, therefore, has developed a system for recording instruments showing the existence of chattel mortgages for particular items of property; these records are usually located in the county clerk’s office.

If a recording system is in existence a buyer is presumed to know about a mortgage. Once, therefore, the mortgage is properly recorded, the buyer obtains the debt in addition to the property.
Cross-references

Recording of Land Titles.
West’s Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group, Inc. All rights reserved.

chattel mortgage n. an outmoded written document which made a chattel (tangible personal asset) security for a loan of a certain amount. It has been replaced in most states by a security agreement, the form of which is designated in a Uniform Commercial Code as UCC-1. These security agreements must be filed with a specific public agency (e.g. a state Secretary of State) to protect buyers of the personal property and lenders making loans secured by the property. (See: UCC-1)

Loans created using the chattel mortgage model are very common in the business world. Corporations may choose to use this type of loan as a means of purchasing new properties, while using assets such as operational equipment, vehicles that are owned in full by the company, or other tangible items that are not permanently attached to land. This allows the corporation to work with the acquired fixed property as it sees fit, since the property does not have any type of lien imposed on the asset.

Part of the advantage to the lender is that the movable property used as security on a chattel mortgage can be seized and sold with relative ease. This can often speed up the process of settling the debt in the event of a default by the borrower, as well as allowing the lender to quickly recover from the failure of the business deal and not incur a great deal of further expense related to recovery efforts. Often, movable property will realize enough return to cover the outstanding indebtedness, including both the balance remaining on the mortgage and any fees and charges incurred during the foreclosure process.