Default & Enforcement Flashcards
rule of default
• rule: only after default can a SP act to enforce the SI, by repossessing the CL or otherwise – so default is the trigger for SP to act on its security
> > > i.e. only events listed as default in the contract (except that missing payments usually does not need to be expressly listed) will give the SP this right – not just any adverse event that isn’t expressly listed
• default: it is whatever the contract or SA says it is – COMPLETELY A MATTER OF CONTRACT
redemption (what it is, who, how, when)
o governs D’s rights to redeem CL BEFORE SP has sold it off through foreclosure
o who: primarily the D, but sometimes other creditors of D
o how: pay all that is owed, plus expenses
»> note: this is typically just one missed payment, but SPs will usually accelerate the debt and require the entire debt be paid in full, with expenses
o when: once SP has repossessed the CL, but no later than when SP has disposed of the CL
foreclosure sale - commercial reasonableness standard and potential penalties
commercial reasonableness: EVERY aspect of a disposition of CL, including the method, manner, time, place, and other terms, must be COMMERCIALLY REASONABLE
- broad standard of generating the best price possible for the CL, so as to pay off the most debt as possible
- i.e. creditor cannot be trying to put its own interests over that of the debtor
- even though a greater amount could be obtained through another disposition at different time and place is not sufficient alone to conclude the transaction was not in a commercially reasonable manner
potential penalties for violating this standard:
- actual damages
- you presumptively lose your right to a deficiency judgment
foreclosure sale - presale notice requirements (form, recipients, exemption, how much notice)
form: must be an authenticated writing
required recipients:
- debtor
- secured obligors (like guarantors)
• and other secured parties falling into one or more of these categories:
»> those who have sent an authenticated notice of a claim of an interest in the CL
»> those that have filed a financing statement identifying D and the CL being sold, and
»> those that are listed on the certificate of title on a car/truck
exemption: when CL is perishable or otherwise threatens to decline speedily in value
how much notice: reasonableness standard
- i.e. FAILURE TO SATISFY PROPER NOTICE COULD LEAD TO FAILURE OF COMMERCIAL REASONABLENESS PENALTIES
foreclosure sale - order of operations
- first, expenses come off the top (SP pays repo fees and legal expenses)
- then, SP applies money to its debt
- next, (if anything left over) payment of lower priority secured claims
> > > **caveat: in order to hold their place in line for such a distribution, the junior SPs have to send written, authenticated demand for such proceeds to the foreclosing SP, and they have to do it before the foreclosing SP has finished distributing the proceeds (hence the notice requirements pending a sale)
• finally, (again, if it even gets this far) debtor gets the surplus or owes the deficiency
foreclosure sale - what happens to the SI on the CL when it is sold under an A9 foreclosure sale?
- title transfers from D to buyer
- the foreclosing SP’s SI is discharged (eliminated), so buyer takes free and clear
• junior SP’s SIs are discharged as well
»> unless not properly joined by the foreclosing party in the foreclosure action!
• CL still subject to SENIOR SIs
strict foreclosure definition and effects on liability & ownership
definition: where the SP does not go through the process of notice and sale, and instead strikes a deal with D – SP keeps the CL and D gets off the hook for the debt (or at least most of it)
effects:
»> D’s liability is eliminated to the extent agreed
»> ownership of CL is transferred to SP
strict foreclosure procedure - 3 rules
(1) D must consent to it either expressly or by not objecting within 20 days of the proposal
(2) SP must send notice of proposal to any other creditor who has a lien in that same CL AND not receive any objections
***so if either D or other SPs object, you can’t keep the ppty, you must do a judicial sale
(3) if D is a consumer D, D cannot have possession of the CL (to prevent unsophisticated Ds from being confused about what’s going on)
»> so SP must have already repossessed the CL before proposing strict foreclosure to a consumer D
self help repo
- upon default, creditors have a statutory self-help right to regain the property, however, it may not amount to a “breach of the peace”
- breach of the peace:
»> violence or actions that have a likelihood of leading to violence
»> any action taken after debtor is present and objects
»> entering home/garage - for accounts: simply send notice to the person who owes money, and now they have to pay you and not debtor
