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Application 1: Security interests
A security interest arises when the borrower and the lender enter into an agreement that authorizes the lender to take collateral that the debtor owns if he/she is unable to pay the loan. There are four methods involved during the creation of a security interest. The first method includes the filing of a financing statement with commercial code filing office. Other methods include the procession of collateral by the lender, the secured party taking control over the collateral, and a mere attachment of the security interest (Herman, 2015).