Default Flashcards
What occurs when a debtor fails to tender an obligation when due?
A default occurs.
What rights does a secured party have upon default?
A secured party may:
* Reduce a claim to judgment
* Foreclose
* Repossess tangible collateral without breaching the peace
Define ‘breach of the peace’ in the context of repossession.
An act likely to lead to violence or unauthorized entry into a home.
What is required if a secured party cannot obtain collateral without breaching the peace?
The secured party must bring an action for replevin. A court will issue a writ of replevin, under which the sheriff can seize the property for the secured party.
If the collateral consists of accounts receivable, instruments, or chattel paper the secured party may,
upon the debtor’s default, notify the person obligated on the collateral to make payment to the
secured party. The notification must:
- Be authenticated by the secured party or debtor
- Reasonably identify the rights assigned
True or False: Once notified, the account debtor can discharge its obligations by paying the original obligee.
False.
Once notified, the account debtor may discharge its obligations only by paying the assignee and is not discharged by paying the original obligee.
What is the debtor’s right to redeem collateral?
The debtor may redeem by tendering the obligation amount, including interest and reasonable expenses.
Fill in the blank: Redemption must occur before ____.
- the collateral has been collected;
- the secured party has disposed of the collateral or has entered into a contract for its disposition; or
- the secured party has accepted the collateral in full or partial satisfaction of the obligation
What must a secured party do before disposing of collateral?
Send a reasonable authenticated notice of disposition.
All aspects of the disposition must be commercially reasonable. What are the requirements for a sale to be considered commercially reasonable?
A sale is commercially reasonable if it is made:
* In the usual manner on any recognized market
* At the price current in any recognized market
* In conformity with reasonable commercial practices
How should the cash proceeds of collection, enforcement, or disposition be distributed?
The order of distribution is:
* Reasonable expenses incurred
* Satisfaction of obligations secured by the security interest
* Satisfaction of obligations secured by subordinate interests
What happens if the collateral does not bring enough at sale to cover all outstanding obligations?
The secured party is entitled to a judgment for the deficiency.
In a non-consumer transaction, what happens if the sale is commercially unreasonable?
The deficiency can be reduced according to the rebuttable presumption rule.
What is the rebuttable presumption rule in context of deficiency?
If the debtor proves the sale was commercially unreasonable, the deficiency will be reduced to the difference between the outstanding loan and the amount the collateral would have sold for.
For the purpose of this calculation, 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.
What must be included in the notice for a consumer-goods transaction?
The notice must include:
* Description of liability for a deficiency
* A telephone number for redemption amount
* Contact information for additional information
True or False: A waiver of the debtor’s right to redeem is enforceable under the UCC.
False.
Can the debtor waive their right of redemption?
There is no right to waiver of the debtor’s redemption rights under the UCC unless all parties to the security agreement agree to the waiver in writing and do so immediately following
the default.
Note: It may not occur in advance of default, or at the inception of the secured transaction.
