title financing

a form of lending over goods One of the defects of the law governing the creation of security rights over goods and chattels is the requirement that for the security to be validly constituted, either the cumbersome registration procedures must be complied with or, alternatively, possession of the goods and chattels must be transferred to the lender. To overcome the inconveniences associated with these rules, techniques were devised to develop alternative transaction forms that in commercial substance were very similar to the conferring of security in return for a loan but that in law were treated differently; these transaction forms have become known generically as 'title financing'. These forms exploit the dichotomy between vendor (or lessor) credit and lender credit and involve the retention of title to the goods or chattels by the vendor or financier with possession being granted to the debtor. The principal transactions in which these techniques are used (and which achieve a similar commercial result to that achieved by a mortgage) are leasing, sale and leaseback, sale and repurchase, factoring and title retention.