Default

Question 1

Rules of SP repossession upon default

Answer 1

SP may repossess tangible collateral if it can do so without breach of peace (i.e., likely to cause violence).

If violence is likely, the SP must file for replevin to have the police seize the property.

Question 2

Rules of the debtor’s right to redeem?

Answer 2

Debtor has right to redeem the collateral by paying:
(1) the amount of the obligation, interest, and
(2) reasonable expenses and attorneys’ fees caused by the default.

Debtor can only waive the right to redemption in writing after default only

Question 3

Requirements of SP disposition of collateral after default

Answer 3

1. Disposition must be commercially reasonable
2. Send notice within a reasonable time to… debtor, any other filed SP, and any other party claiming an interest that the SP has notice from.

** 10 days is sufficient in a commercial transaction

**Notice does not apply to perishable goods that may quickly decline in value, or is a type that is sold on a recognized market (e.g., stocks)

Question 4

What must be included in a notice before disposition upon default?

Answer 4

Non-consumer transaction:
(1) description of Debtor and SP;
(2) description of the collateral;
(3) method of intended disposition;
(4) a statement that Debtor is entitled to an accounting of all unpaid indebtedness; and
(5) the time and place of a public sale, or when the collateral will be sold in a private sale.

Consumer transaction must also include:
(1) description of any liability for a deficiency;
(2) phone number to call to obtain the amount required to redeem the collateral; and
(3) phone number or mailing address to find out additional information that is available

Question 5

Order of distributing proceeds upon default

Answer 5

1. all reasonable expenses, including attorneys’ fees, incurred by the SP in the
   process of disposing of the collateral
2. pay the outstanding amount due to the SP that foreclosed on and sold the collateral
3. pay subordinate SIs or liens on the collateral if they sent an authenticated demand before disposal
4. any surplus goes to Debtor; if all debts are not covered by the sales, the SPs can obtain a deficiency judgment

Question 6

Define deficiency

Answer 6

Difference in foreclose price and the amount due on the SI

Question 7

Can deficiency be reduced?

Answer 7

Yes, if sale is commercially unreasonable.

Non-consumer transactions:
reduce the deficiency to the difference between the outstanding amount of the loan and the amount that the collateral would have sold for in a commercially reasonable sale.

Rebuttable presumption: For the purpose of this the amount that the collateral would have sold for in a commercially reasonable sale is presumed to be the outstanding amount of the debt; thus the deficiency would be $0.

To rebut: SP can rebut the presumption with evidence that the collateral is worth less than the outstanding amount of the debt.