Key Takeaways
- Chattel refers to movable personal property, separate from real estate, and includes items such as vehicles and furniture.
- Chattel mortgages use movable property as collateral, which involves the transfer of legal ownership to the lender until the loan is repaid.
- Chattel properties often depreciate quickly, unlike real estate, and they have specific tax and legal ownership implications.
- Chattel can include both tangible items, like cars, and intangible assets, such as leases and patents.
What Is Chattel?
Chattel is movable personal property, such as mobile homes, furniture, and vehicles, distinguished from real estate. It plays a significant role in finance because it can serve as collateral in chattel mortgages, which carry different tax and ownership implications than real property. We’ll explain how chattel functions in these arrangements and provide some practical examples.
Impact of Chattel on Ownership and Value
In the legal and financial world, chattel refers to movable personal property. Chattel’s value can drop rapidly due to depreciation, as is often seen with new cars, and typically does not increase with improvements or renovations.
For these reasons, chattel property is treated differently from real estate for tax and accounting purposes.
Additionally, legal systems treat the rights to chattel property differently from the rights to real property. The rights to real property typically have longer statutes of limitations and are harder to overturn.
Fast Fact
In real estate transactions, a seller may take all chattel from the home, but items like attached light fixtures and built-in furniture must remain in place for the buyer, unless the buyer and seller agree to different terms.
The Mechanics of Chattel Property
As mentioned, the primary difference between chattel and real property is that chattel is movable while real property is fixed permanently to one specific location.
In general, chattel refers to tangible property, or property that has a physical presence and can be seen or touched. However, in some instances, chattel may also be intangible property. Examples of intangible property include leases, financial assets, trademarks, patents, and other intellectual property.
In property law, the distinctions between property types have important implications both in terms of tax consequences and ownership rights. For instance, property rights on chattel are generally weaker and less enforceable than an owner’s rights to real estate.
Note
Chattel comes from the French word “chatel,” which itself comes from the Latin word “capitale.”
Chattel Mortgages: Effective Financing Tools
A chattel mortgage is a mortgage on movable property that uses the property as collateral to back the loan. When the mortgage is issued, legal ownership of the chattel is transferred to the lender. The mortgage is removed when the loan is repaid.
Chattel mortgages often have higher interest rates than other types of mortgages. You may also hear this form of financing referred to as a security interest, security agreement, or trust receipt. In its definition of chattel mortgage, Cornell Law School’s Legal Information Institute refers to it as an “antiquated term.”
The contract that spells out the financial obligations of the borrower and the security interest held by the lender or other creditor is often referred to as a chattel paper.
In the United States, chattel mortgages, by whatever name, are governed by Article 9 of the Uniform Commercial Code (UCC) and any applicable state laws.
Chattel Mortgage Examples
Mobile homes that are set up on leased land can be financed using mobile home loans, a form of chattel mortgage. The mobile home serves as collateral, and the loan can stay in place even if the mobile home is moved to another plot of land.
Businesses can also use chattel mortgages to purchase new equipment from the manufacturer or another seller. For example, a company might buy a piece of heavy machinery from a seller that will agree to finance it over a number of years. Until the loan is paid off, the seller will want to keep a security interest in the machinery just in case the buyer defaults. A chattel agreement will allow the buyer to use the equipment, while protecting the seller’s financial interests at the same time. If the buyer is unable to keep up with the payments, the seller can seize and sell the property to recoup at least a portion of the money the buyer still owes.
What Is a Chattel Mortgage?
A chattel mortgage is a type of loan that is secured by a movable piece of property. In contrast, a traditional mortgage is typically secured by a fixed property.
What Is Chattel Paper?
Chattel paper is a document used in secured transactions, like a chattel mortgage, confirming the buyer’s and seller’s rights and obligations.
What Are Goods and Chattels?
The phrase “goods and chattels,” which has a long history in English common law, is another term for chattels, meaning personal rather than real property.
What Is the Difference Between Tangible and Intangible Personal Property?
Tangible personal property exists physically in the world. It can be seen, touched, and moved. Examples include cattle, clothing, vehicles, and factory equipment. Intangible personal property, on the other hand, doesn’t derive its value from physical attributes (and it can’t be touched or moved). Examples include patents, trademarks, and other intellectual property.
What Is the Uniform Commercial Code (UCC)?
The Uniform Commercial Code (UCC) is a set of laws that have been agreed upon and adopted by states across the United States. It is not a federal law.
The goal of the code is to establish a standard set of rules governing financial contracts and transactions that apply in all states and facilitate interstate commerce. However, some states have not adopted all of its provisions or have modified them for their own purposes.
The UCC consists of a set of “Articles,” with Article 9 applying to transactions that are secured by personal property, such as chattel mortgages. The UCC is frequently revised, and a new article, Article 12, was added in 2022 to cover certain kinds of digital assets.
The Bottom Line
Chattel is movable personal property, like cars or intellectual property. In a chattel mortgage, this property secures the loan, often with higher interest rates and distinct tax and legal rules. Because chattel depreciates quickly, borrowers should compare terms and review obligations before agreeing to the loan.
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