Default Flashcards
What is the legal effect of default?
Upon default, a SP may take possession of collateral without judicial process or collect on non-goods via authenticated notification
When is reclaiming possession via self-help permitted?
Anytime, so long as no breach of the peace occurs
When does a breach of the peace occur?
Generally, when repossession is made over Debtor’s request. Simple trespass is permissible, violence or breaking/entering is not.
Upon default, can a secured party dispose (sell, lease, etc.) of the collateral?
Yes, as long as it is done in a commercially reasonable manner.
What notice does a secured party owe debtor before sale of defaulted-on collateral?
SP must give notice to debtor in authenticated writing, sent a reasonable amount of time before the sale/disposition of the collateral
What is the effect of sale of defaulted-on collateral?
The sale discharges the SI under which the sale is being made, as well as any subordinate SIs and liens.
What happens if there is a deficiency owed to creditor after disposition of the defaulted-on collateral?
debtor is still liable for the remainder
What happens if there is a surplus after disposition of the defaulted-on collateral?
Any subordinate interests must be satisfied in order of priority, and then the remainder to debtor
In what situations will neither party be liable for surplus or deficiency?
when the underlying transaction involves:
- accounts
- chattel paper
- payment intangibles
- promissory notes
What is the debtor’s “Right to Redeem”?
until SP has sold collateral, debtor or any other SP may redeem the collateral by paying all remaining obligation plus reasonable expenses incurred in repossession
Priority of Paying out Surplus
Reasonable expenses of foreclosure
Foreclosing SI
Junior SIs
Debtor
Strict Foreclosure Rule
Upon default, foreclosing party may keep the collateral (rather than selling it) to fully or partially satisfy the debt
Strict Foreclosure Requirements
Debtor must consent to strict foreclosure
SP must send notice of intent to keep collateral
No notified party objects within 20 days
In what two ways can a debtor consent to strict foreclosure?
Agreement in authenticated record
Debtor fails to object within 20 days of notice
What are the requirements of a foreclosing party’s notice regarding strict foreclosure of collateral?
(i) authenticated notice must state collateral is being kept in satisfaction of the debt
(ii) notice must be sent to debtor and any other SP who: (a) provided notice of a claim to the collateral, or, (b) perfected a SI in the collateral by filing a FS
