Default + Jurisdictional Issues Flashcards
what is defaulting and the right to repossess
Upon default, a secured party may take possession of collateral without judicial process or collect on non-goods via authenticated notification
Note — default is defined in security agreement; not defined by Art. 9
how can a secured party repossess via self-help
reclaiming possession through self-help is allowed as long as no breach of the peace occurs
Breach of the peace = repossession made over debtor’s protest
- Violence, threats of violence not ok
- Simple trespass in order to repossess property is permissible, breaking and entering is not
- basically anything that could lead to violence is breach of peace
what are the collection rights when the collateral was non-goods (e.g., accts, instruments, etc.)
- upon default the secured party can notify the person owing the debtor (account debtor)
- Secured party must send authenticated notification to account debtor
- Upon notification, account debtor can only discharge his obligation by payment to secured party
once default occurs, can the secured party sell/lease the collateral
Upon default, a secured party can dispose of collateral (i.e., sell, lease, etc.) as long as it is done in a commercially reasonable manner
- must give notice to debtor in authenticated writing in rxble time before sale
what is the effect of the secured creditor selling the collateral post-default
sale discharges SI under which sale is being made, as well as any subordinate SIs and liens
Purchaser of collateral generally takes debtor’s rights in collateral
what happens if the post-default sale of the property is more/less than the value of the original collateral
Surplus — sale generates more than remaining obligation
- secured party must pay debtor any surplus
Deficiency — sale generates less than remaining obligation
- debtor is still liable for amount remaining
Exception — neither party is liable for surplus or deficiency if underlying transaction involves: accounts, chattel paper, payment intangibles, or promissory notes
what is the are debtors/other secured party’s right to redeem post-default
until secured party has sold collateral or discharged debt by retaining collateral, debtor or any other secured party may redeem collateral by paying all remaining obligations plus reasonable expenses incurred for repossession
what is a strict foreclosure in relation to default
In a strict foreclosure, upon default the foreclosing party may keep collateral (as opposed to selling it) to fully or partially satisfy the debt
if the creditor wants to do a strict foreclosure, what requirements do they need to meet first
1) Secured party must send notice of intent to keep collateral to a) debtor and b) any other secured party who:
- Provided notice of a claim to the collateral; and
- Perfected a SI in the collateral by filing a financing statement or making a notation on a title certificate
2) Debtor must consent to strict foreclosure — two ways to consent:
- Debtor agrees to strict foreclosure in authenticated record, or
- Debtor fails to object within 20 days after secured party sent notice of strict foreclosure
3) If no notified party objects within 20 days then good to keep it — if a notified party objects, collateral must be disposed of through sale
what are the exceptions to doing a strict foreclosure
Consumer transactions — secured party may not keep collateral in partial satisfaction of debt, then seek deficiency judgment for remaining unpaid balance
Consumer goods — where debtor has paid at least 60% of a PMSI or loan, secured party must sell collateral within 90 days after repossession unless debtor waives rights requiring sale
how to determine the governing law over perfection of SI
law of the state where debtor is located generally governs perfection of a SI
- Individual debtors — principal residence
- Registered organizational debtors — state of incorporation
- Unregistered organizational debtors (e.g. partnership) — place of business or chief executive office if more than one place
generally what happens if the debtor or the collateral moves from one state to another
SI generally remains temporarily perfected
- Gives secured party time to perfect in new state
- If secured party fails to perfect in new state, interest becomes unperfected and thus loses its time of priority
what happens if the debtor relocates from the state in which the creditor’s SI is perfected
SI remains perfected for four months
To remain continuously perfected, secured creditor must file in the new jurisdiction before the four month period expires
what happens to a possessory perfected interest in collateral if that collateral moves states
SI remains perfected as long as it would be perfected by possession under laws of the new state
