Exam 4 - Chapter 16 (Creditor Law) Flashcards
Debtor & Creditor
U.S. is credit Economy
Debtor
Borrower in credit transaction
Creditor
Lender in credit Transaction
Unsecured Credit
- Creditor relies on debtor’s promise to repay (plus interest) when due.
- Legal action if debtor fails to make payments.
- Example: Credit Card
Secured Credit
Credit that requires security that secures payment of loan.
-Collateral can be repossessed to recover amount if debtor fails 2 make payment.
Example: House or car
Security Interests in Real Property
Mortgage
- Note and Deed of Trust
- Recording of Statues
- Foreclosure
- Deficiency Judgement
- Right of Redemption
- Land Sales Contract
Mortgage
2 party instrument
- Real property used as collateral
- -owner/debtor is mortgagor
- -creditor is mortgagee
Note and Deed of Trust
Used in place of mortgage in some states
- Note is evidence of borrower’s debt.
- Deed of trust gives creditor security interest in property.
- -3 party instrument
- -Legal title of property placed with trustee until owner-debtor (truster) pays the beneficiary
Recording Statute
- Mortgage and deed of trust must be recorded at country recorder’s office.
- Gives potential lenders and purchasers notice as to claims against policy.
- Nonrecordation does not effect legality of instrument.
- Improperly recorded instrument not effective against subsequent purchasers or other mortgages.
Foreclosure
In case of default, mortgage can declare entire amount due and payable.
Foreclosure Sale
- Legal Procedure by which secured creditor causes judicial sale of secured real estate to pay default loan.
- Must name party having interest in property as defendant.
- Property sold at judical sale, mandated by statutes.
- Most states permit foreclosure by power of sale.
Deficiency Judgement
Some states permit mortgagee to bring separate legal action to recover deficiency from mortgager.
- If successful, court awards deficiency judgment.
- Entitles mortgagee to recover amount of judgement from mortgagers property.
- -(Amount of money house sold for, doesnt cover debtor’s debt).
Right of Redemption
Allow mortgager to redeem real property after default and before foreclosure.
-Requires mortgager to pay full amount of debt incurred by morgagee because of mortgagor’s default.
(the right to reclaim property)
Statutory period of redemption
Mortgagor can redeem for full amount for specific time
If purchaser defaults Land Sales contract..
Seller declares forfeiture and retakes possession of property.
Material Person’s Lien
-Makes real property to which improvements are being made become security for payment of services and materials for improvements.
($10,000 car, bank holds title to it until money paid example)
Obtaining Material Persons Lien
- Lienholder must file notice of lien
- Must state amount of lien, name of claimant, name of owner of property and description of real property.
- Must be filled in specific time period.
- Notice must be given to owner of real property.
- Lien release
Secured Transaction
Transaction when creditor makes loan to debtor in exchange for debtor’s pledge of personal property as security. (Think of Joe needing 5000$ from Al, Joe never returned Al’s wheelbarrel. So Joe gave Al his mustang as collateral if Joe did not reimburse him for 5000$ and wheelbarrel
Secured Party
Seller or lender in whose favor there is a security interest, including party to whom accounts has been sold. (AL)
Security Interest
Interest in personal property or fixtures that secures payment or performance. (Mustang)
Security Agreement
Agreement between debtor and secured party that creates or provides for security interest.
collateral
Property subject to security interest, including accounts and chattel paper that have been sold.
Tangible Personal Property
Equipment Vehicles Furniture Computers Clothes Jewelry
Intangible Personal Property
Securities
Patents
Trademarks
Copyrights
Personal Property and Credit
Personal Property is often sold on Credit.
Unsecured Credit Personal Property
No interest in collateral
If debtor defaults, creditor must sue debtor
Secured Credit Personal Property
Purchaser pledges collateral
Creditor may recover collateral in case of default
Secured Transaction
Creditor extends credit to debtor and takes security interest.
Secured party is seller, lender, or third party.
Secured party can foreclose on collateral if debtor fails to pay.
Governed by Revised Article 9 of the UCC.
Personal Property Subject to a Security Agreement
Goods Instruments Chattel paper Documents of title Accounts General intangibles
Goods
Consumer goods bought or used primarily for personal, family, or household purposes
Equipment bought or used primarily for business
Farm products including crops, livestock and supplies used or produced in farming operations
Inventory held for sale or lease, including work in progress and materials
Fixtures affixed to real estate so as to become part thereof
Instruments
such a checks, notes, stocks, bonds, and other investment securities
Personal Property subject to a Security Agreement Cont.
Chattel paper, such as a conditional sales contract
Documents of title, including bills of lading and warehouse receipts
Accounts, such as accounts receivable
General intangibles, such as patents, copyrights, money franchises, and royalties
Written Security Agreement
The agreement between the debtor and the secured party that creates or provides for a security interest.
Written Security Agreement Valid if
Clearly describe the collateral so that it can be readily identified.
Contain the debtor’s promise to repay the creditor, including terms of repayment.
Set forth the creditor’s rights upon the debtor’s default.
Be signed by the debtor
Attachment
Debtor must have current or future legal right in or right to possession of collateral.
Rights of secured party attach to collateral.
Creditor has enforceable security interest in property.
Debt can be satisfied out of collateral
Floating Lien Concept
A security interest in property that was not in possession of the debtor when the security agreement was executed.
Floating Lien can attach too…
After-acquired property
Future advances
Sale proceeds
Default
Failure to make scheduled payments when due, bankruptcy of the debtor, breach of the warranty of ownership as to collateral, and other events defined by the parties to constitute default