Default, Enforcement, Acceptance, Redemption

Question 1

True or false: Article 9 defines default

Answer 1

False. BUT Article 9 does govern enforcement

Refer to the security agreement and applicable contract law to determine what defines default

Question 2

If a debtor is in default, a secured party can do what?

Answer 2

1. Seek possession of tangible collateral (to sell or retain)
2. Obtain judgment against debtor/obligor
3. Pursue courses of action to which the parties have agreed

Question 3

What are the two ways to repossess collateral?

Answer 3

1. Judicial process (ex: replevin action)
2. Use self-help, but don’t breach the peace

Question 4

How would a secured party repossess large equipment that is tough to move?

Answer 4

Render the equipment unusable and sell on sight

Question 5

How can one tell if a secured party disposed of collateral in a commercially reasonable manner?

Answer 5

1. Sold in the usual manner/recognized market
2. Sold at price current in that market
3. Conformity with reasonable commercial practices among dealers in that type of collateral

Question 6

True or false: Price alone is determinative of whether a sale is commercially reasonable

Answer 6

False. BUT a low price will trigger increased scrutiny.

Question 7

What is the typical distribution from cash proceeds?

Answer 7

1. Costs for collection/enforcement
2. Debt to the foreclosing secured party
3. Subordinate security interests, if party makes a formal demand prior to discribution
4. Any surplus to debtor

Note: if not enough money to satisfy the debt, secured party can seek deficiency judgment against obligor for remaining amount

Question 8

True of false: a secured party may accept collateral in full or partial satisfaction of debt

Answer 8

True, so long as certain conditions are met

Ex: Debtor’s consent

Question 9

True or false: in consumer goods transactions, a secured party can only accept collateral in full satisfaction of the obligation

Answer 9

True

Question 10

What is the 60% rule for consumer goods?

Answer 10

If the goods are consumer goods and the debtor has paid back 60% or more of the debt or value of collateral, goods must be sold. (acceptance not permitted)

Question 11

Can a debtor redeem collateral by paying secured obligation in full?

Answer 11

Yes, this applies to debtor, secondary obligor, or secured party.

Full obligation + expenses prior to sale or acceptance of collateral in satisfaction of the debt

Question 12

True or false: A secured party with priority may not remove fixtures from real estate

Answer 12

False. Security party may remove, but is also liable for cost of repairs to damage of real estate. NOT diminishing value resulting from removal