Default Flashcards
What is a default, in the context of secured transactions?
The debtor breaches the security agreement, generally by failing to re-pay.
Upon default, that options are available to our Art. 9 secured creditor
1) Self-help repossession
2) Repossession by judicial action
3) Strict foreclosure
4) Sale
5) Deficiency judgment
When is self-help repossession permissible?
What constitutes a breach of the peace?
When the creditor can repossess the collateral by self-help WITHOUT breaching the peace.
A breach of the peace occurs when (1) the secured party’s actions are likely to provoke violence; (2) the debtor makes any protest, however mild; or (3) the repossessor misuses color of law (e.g. by impersonating a law enforcement officer).
It is NOT necessary that an actual fight break out; rather, the secured party must merely do something provocative.
When collateral is in the debtor’s home, the secured party may not enter for purposes of repossession without
Voluntary and contemporaneous consent
How does judicial action work?
A court orders the sheriff to obtain possession of the collateral and deliver it to the secured party.
What is strict foreclosure?
Strict foreclosure occurs when the secured party retains the collateral in satisfaction of debt owed - in other words, the creditors lawfully retains the collateral and the debt, in turn, is canceled
This works best when the value of the collateral is approximately equal to the amount of the debt
What is the procedure for accomplishing a strict foreclosure of consumer goods?
When not consumer goods?
Send a written proposal to retain the collateral in satisfaction of the debt to the debtor and secondary obligor (guarantor of the debt)
Send the notice to (1) debtor; (2) other secured parties who have told the foreclosing creditor of their security interest in the collateral; and 3) perfected creditors and secondary obligors.
What happens if any of the notified parties objects within 20 dates after the notice is sent?
Strict foreclosure will not be allowed; the collateral must be disposed of by sale.
With regards to strict foreclosure, what is the 60 percent rule?
If the collateral is consumer goods and the debtor has paid 60% of the loan / cash-price, strict foreclosure is not allowed.
Instead, the secured party must sell the collateral within 90 days or be liable in conversion.
How does a sale work?
Who chooses whether the sale will be public or private?
The secured party sells the collateral and applies the proceeds to the debt
The secured party
What are the two general requirements for sales?
1) Every aspect of the sale must be commercially reasonable;
2) Prior to the sale, reasonable notice must be sent
If the collateral is consumer goods, to whom must notice be sent?
For all other types of collateral?
The debtor and secondary obligors
(1) The debtor; (2) other secured parties who have told the foreclosing creditor of their security interest in the collateral; and 3) perfected creditors and secondary obligors.
For public sales, what must the notice state?
For private sales?
The time and place of the sale;
The time AFTER which the sale will be made
For consumer goods, what additional consumer-protection provisions are necessary for notice to be effective?
How to calculate the debtor’s deficiency
How the debtor can redeem
How much advance notice is required?
No bright line - the standard is commercial reasonableness
However, in non-consumer transactions, notice is deemed reasonable if sent 10 days or more before the sale
