5. Default Flashcards
When is self-help repossession permissible?
Self-help repossession is permissible, so long as creditor does not breach the peace.
When does a breach of the peace occur?
A breach of the peace occurs when the secured party’s actions are likely to cause violence.
A repossession made over any protest by the debtor, however mild the protest, constitutes a breach of the peace.
In a self-help repossession, SP may not enter debtor’s home without:
Voluntary and contemporaneous consent
What is a repossession by judicial action?
If the secured party chooses not to resort to self-help repossession, he or she may get a judicial writ of replevin, ordering the sheriff to obtain possession of the collateral and deliver it to the secured party.
Strict Foreclosure
Strict foreclosure occurs when the secured party retains the collateral in full satisfaction of the debt still owed.
In other words, the creditor lawfully retains the collateral and the debt in turn is canceled.
How to strictly foreclose:
To accomplish strict foreclosure, the secured party must send a written proposal to retain the collateral in satisfaction of the debt.
What happens if one of the notified parties objects to a strict foreclosure?
If any of the notified parties objects within 20 days after the notice is sent, strict foreclosure will not be allowed. Instead, the collateral must be disposed of by sale.
Consumer goods and the 60% rule:
If the collateral is consumer goods and the debtor has paid 60% of the loan in the event of a non-PMSI or 60% of the cash price in the event of a PMSI, strict foreclosure is not allowed. Instead, the secured party must sell the collateral within 90 days or be liable in conversion.
Sale in the event of a foreclosure
The secured party may sell the collateral and apply the sale proceeds to the debt.
Two governing guideposts for a default sale:
- Every aspect of the sale must be commercially reasonable.
2. Prior to the sale, reasonable notice must be sent.
How much advance notice is required for a default sale?
There is no bright line. The standard is one of commercial reasonableness. However, in a non-consumer transaction, notice is deemed sent within a reasonable time if it is sent 10 days or more before the time of sale.
May the secured party buy at a default sale?
At a public sale, yes.
At a private sale, absent external market checks, no.
When is a debtor’s right to redeem the collateral cut off?
The debtor’s right to redeem the collateral is cut off once the secured party has resold or completed a strict foreclosure.
How can a debtor redeem?
To redeem, the debtor must pay the missed payment(s) plus accrued interest, and creditors reasonable expenses, including attorney’s fees.
If the security agreement contains an acceleration clause (which permits the creditor to declare the full balance due in the event of default), to redeem the debtor must:
Pay off the entire debt, plus interest, plus expenses
