#3 - Repossession of Collateral Flashcards
Right to Repossession
This is a right for ONLY secured creditors of personal property to take possession of the collateral after default and prior to a nonjudicial foreclosure sale. 9-609.
The secured party CANNOT BREACH THE PEACE.
This occurs despite the fact that the debtor still technically owns the personal property. Ownership only dies at foreclosure sale (and even then, with a statutory right of redemption, it could drag on for much longer for real estate).
How Can a Secured Party Repossess the Collateral?
1) Through judicial process under 9-609(b)(1), a secured creditor can get a “writ of replevin” and have the sheriff go take the property back. But in the consumer context they almost always choose a repo man instead:
2) Exercise “self help” by hiring a repo man to go take it from the debtor. The secured creditor can legally do this so long as the repo man doesn’t “breach the peace”.
Breach the Peace = this is a low bar
Breaking in is permissible but make sure to lock up to avoid leaving premises vulnerable.
If equipment, the secured creditor may render it unusable without removing it.
What is “breaching the peace”?
Threats of violence or physical violence are sufficient to breach the peace.
Trespass is permissible since creditor’s have a legal right to repossession under the UCC. asserting trespass =/= breach of the peace.
If kicked off property, repo man can resume repo efforts at a later time without breaching the peace.
If the debtor successfully resists repossession, the secured creditor must obtain a court order for possession and have the sheriff take possession from the debtor; moves from a self-help remedy to a judicial order. This is called filing a writ of replevin.
Breach of peace can’t be waived.
How does one receive remedy under a replevin action?
(1) file civil action against debtor
(2) upon filing, creditor can move for “immediate temporary possession” pending the outcome of the case
(3) creditor may have to post a bond as insurance for the writ should debtor prevail in the action
How does one engage in self-help against collateralized accounts?
Self-help remedies exist for “assignees” of accounts. An assignee includes both buyers of accounts and creditors who have collateralized the account.
Under 9-607, the secured creditor who knows of the identify of the account debtor’s sends written notices to directly pay the creditor. It is up to the account debtor to determine whom to pay in such situations; they can request proof.
Collecting on accounts as collateral may be difficult in a self-help context b/c account debtors (the buyers of stuff/services from the creditor’s debtor) are only motivated to pay in continuance of their existing arrangement w/ the creditor (no default)
Can you defraud a guard to gain access for repossession?
NO, you can’t tell the client to do illegal things. Can’t tell your client to dupe the guard. But if the client does it on their own… might be fine.
Can officers assist in repossession?
No. Police are permitted to “keep the peace.” Police cross the line when the “affirmatively intervene” to aid the repossessor. It’s illegal for cops to assist in self-help repo because that would make it an illegal breach of the peace.
How should you structure the security agreement to ensure the ability to exercise a self-help remedy?
Under 9-201, a security agreement is effective against both parties. Thus, you should include a provision that states (a) the debtor consents to entry into land or building for repossession or (b) requires the debtor to assemble the collateral.
Who is the self-help remedy most effective against?
Self-help is most effective against uninformed and non-hostile debtor. Typically, self-help is most commonly used against consumers and a writ of replevin used against business-debtors.
Can you trespass on debtor’s or 3rd persons’ land?
This varies between jurisdictions. Some courts say you can break in to debtor’s land but not if other property of the debtor could be exposed to theft or the elements.
What about 3rd parties? To the extent the debtor has the right to ingress or egress over the property, the creditor also has right of ingress or egress. Having said that, it’s risky if the debtor agreed with the landowner not to let anyone else on. Risks torts. Do writ of replevin with sheriff at that point.
