Enforcement of Security Interests

Question 1

What is a default?

Answer 1

It is defined by the agreement, when debtor fails to satisfy the debt in time.

Question 2

What’s repossession?

Answer 2

Right of the secured creditor who can repossess the collateral (or render it unusable so the debtor can’t move it pending sale) without notice and by any means so long as the creditor avoids breaching the peace.

Question 3

What is a “breach of the peace”

Answer 3

Defined by case law, it avoids violent confrontation. Debtor yelling “get out of here” will usually constitute, can’t use intimidation, trespassing on debtor’s property late at night, etc.

Question 4

What replevin action?

Answer 4

Judicial order to send out the sheriff to repossess, if self-help actions don’t work

Question 5

What are collecting accounts?

Answer 5

Debtor’s right to collect money owed by other people can be “repossessed” by telling account debtors (debtor’s debtor’s) to pay creditor.

Question 6

Can debtor’s debtor’s pay debtor to discharge their debt if their account is collected by creditor?

Answer 6

No, MUST pay creditor to discharge debt.

Question 7

Can account debtor assert any defenses to paying creditor?

Answer 7

Yes, any defenses they could have used against debtor can also be asserted against creditor.

Question 8

How can a debtor redeem his property?

Answer 8

Debtor can redeem the repossessed collateral by paying off the debt plus the creditor’s repossession expenses and fees

Question 9

When can a debtor redeem his property?

Answer 9

Debtor must exercise his right to redeem before that right is formally foreclosed.

Question 10

Can a debtor waive his right to redeem?

Answer 10

Yes, but only AFTER DEFAULT. Agreements to waive redemption rights before default are UNENFORCEABLE.

Question 11

What factors must a foreclosure by sale or other disposition include?

Answer 11

1. Must be commercially reasonable
2. Creditor Bidding at private sale rule
3. Notice
4. Disposition of sale proceeds

Question 12

When is a sale considered “commercially reasonable”?

Answer 12

Regardless of whether its public or private sale, every aspect must be “commercially reasonable”
Note: Price alone doesn’t make a method commercially unreasonable.

Question 13

When may the creditor bid on the collateral?

Answer 13

When it is a private sale, creditor can only bid on collateral if its “of a kind customarily sold on a recognized market” or subject to “widely distributed standard price quotations”. This is a public policy rational, don’t want to give creditors ability to make undue gains.

Question 14

Who must creditor give notice of sale to?

Answer 14

1. Debtor
2. Any secondary obligor (guarantors)
3. if the collateral isn’t consumer goods, other parties whom the creditor knows/should know has interest in the collateral

Question 15

Can debtor waive notice of sale of collateral?

Answer 15

Yes, but only by authenticated record AFTER default.

Question 16

When is notice not required?

Answer 16

When the collateral is perishable, will depreciate quickly, or is of a type customarily sold on a recognized market (stock)

Question 17

When is a sufficient amount of time reasonable for non-consumer cases?

Answer 17

Usually 10 days before sale is sufficient. No specific rules for consumer cases.

Question 18

What is the order of disposition of sale proceeds?

Answer 18

1. Creditor’s costs of sale
2. secured debt to disposing creditor
3. debt to subordinate secured creditor who notifies the disposing creditor of its interest
4. Any excess returns to the debtor, though usually debtor remains liable any deficiency.

Question 19

What is a strict foreclosure?

Answer 19

When creditor negotiates to buy collateral from the debtor.

Question 20

What do you need for a strict foreclosure?

Answer 20

1. Proposal sent to debtor from creditor for retaining collateral in exchange for forgiveness of some/all of debt
2. Notice to other creditors that have an interest in collateral
3. Assent-presumed accepted if debtor fails to make a written objection within 20 days and no other notice party objects.

Question 21

What are the consumer exceptions?

Answer 21

1. Only full satisfaction of the debt (no partial satisfaction proposals)
2. collateral cannot be in debtor’s possession at the time of proposal
3. No strict foreclosure for consumer goods if the debtor has paid 60% of the principal amount of the secured loan (debtor can waive this restriction after default)

Question 22

What are remedies for creditor’s failure to comply?

Answer 22

Actual damages for anyone actually injured.

Question 23

What is loss of deficiency?

Answer 23

Creditor must prove it complied with rules and a deficiency nonetheless remains.

Question 24

What is presumed in non-consumer cases regarding deficiency?

Answer 24

Presumed that a commercially reasonable sale would have left no deficiency

Question 25

What are the statutory damages in consumer cases?

Answer 25

Damage award in every violation (or series of violations) in consumer cases: at least 10% of the original principal of the secured loan plus all interest paid over the life of the loan (“credit service charge”)