Default Flashcards
Secured party’s rights upon default
Upon default, the secured party may repossess tangible collateral if it can do so without breach of peace (i.e., likely to cause violence)
Debtor’s Right to Redeem
Debtor has right to redeem the collateral by paying the amount of the obligation, interest, and reasonable expenses and attorneys’ fees caused by the default.
Debtor can WAIVE the right to redemption in writing AFTER default only.
All aspects of disposition of the collateral after default must be:
Commercially reasonable
Notice before disposition after default
Secured party must send notice to Debtor, any filed Secured parties, and any other person for whom the secured party has received notification of an interest in the collateral.
When must notice of disposition after default be sent?
Notice must be sent within a reasonable time before the sale.
10 days is ALWAYS sufficient in commercial transactions.
Required contents of notice of disposition after default for a non-consumer transaction
+ Description of Debtor and secured party;
+ description of collateral;
+ method of intended disposition;
+ statement that Debtor is entitled to an accounting of all unpaid indebtedness; AND
+ the time and place of a public sale, or when the collateral will be sold in a private sale.
Required contents of notice of disposition after default for a consumer transaction
+ Description of Debtor and secured party;
+ description of collateral;
+ method of intended disposition;
+ statement that Debtor is entitled to an accounting of all unpaid indebtedness; AND
+ the time and place of a public sale, or when the collateral will be sold in a private sale.
ADDITIONALLY -
+ description of any liability for a deficiency;
+ phone number to call to obtain the amount required to redeem the collateral; AND
+ phone number or mailing address to find out additional info that is available.
Order of distributing proceeds of disposition after default
FIRST - all reasonable expenses, including attorneys’ fees, incurred by the secured party in the process of disposing of the collateral.
SECOND - pay the outstanding amount due to the secured party that foreclose don and sold collateral.
THIRD - pay subordinate security interests or liens on the collateral if they sent an authenticated demand before disposal.
FINALLY - any surplus goes to Debtor; if all debts are not covered by the sales, the secured parties can obtain a deficiency judgment.
What is a deficiency?
Deficiency = Difference between the foreclosure price and the amount due on the security interest.
If all debts are not covered by sale of collateral, the secured parties may obtain a deficiency judgment.
When can a deficiency be reduced?
If the sale of collateral is commercially UNREASONABLE, the deficiency can be reduced.
+ Non-Consumer transactions – reduce the deficiency by the amount in between the outstanding amount of the loan and the amount the collateral would have sold for in a commercially reasonable sale.
Rebuttable presumption – presume difference = $0 so Debtor does not owe a deficiency.
Secured party can rebut the presumption by showing the collateral is worth less than the outstanding amount of the debt.
