What are two principal types of security interests?

Mortgages and secured transactions are two principal types of security interests because they both involve the use of personal or real property as collateral to secure a debt.

In a mortgage, a borrower pledges real property to a lender as security for a loan. If the borrower defaults on the loan, the lender has the right to take possession of the property through foreclosure, thus fulfilling the debt obligation.

Secured transactions, governed by the Uniform Commercial Code (UCC), allow a creditor to obtain a security interest in personal property (such as equipment, inventory, or receivables) to secure a loan or transaction. This means that if the debtor defaults, the creditor can pursue the secured collateral to satisfy the outstanding debt.

Both mortgages and secured transactions effectively provide a legal framework for securing credit, ensuring that lenders have recourse in the event of non-payment, which is why they are recognized as principal types of security interests.