rights on default Flashcards
Definition of default
typically includes failure to pay or maintain insurance or failure to perform
when can secured party engage in self-help repossession
secured party may take repossession without judicial process if it can be done without breach of the peace
Breach of peace is any action that has potential to lead to violence
—- debtor’s physical presence + verbal objection = breach of peace
EXAMPLES OF BREACH OF PEACE:
(1) breaking and entering of a home
(2) unauthorized entry of home through open window
(3) entry of home even when security agreement says sec party may enter at any time to repossess
POTENTIAL BREACH OF PEACE:
(1) breaking and entering of commercial property is LESS likely to be breach
(2) not securing the premises on your way out
NOT BREACH OF PEACE
(1) simple trespass [hot wiring of car in the driveway or commercial garage]
repossession by judicial process
ex: replevin
options for secured party after repossession
(1) retain collateral [strict foreclosure]
or
(2) sale
requirements for full or partial strict foreclosure [when sec party retains possession instead of sale]
(1) sec. party sends its proposal to keep collateral to
(a) any other sec. party who has a claim who has notified you
(b) any other sec party who has perfected sec interest int he colalteral by filing a financing statement or noting its sec interest on a cert of title
(2) notified claimants do not object within 20 days
[if they object the sec party must dispose by sale]
(3) debtor consents by either
(a) agreeing in authenticated record after default
or
(b) for full strict foreclosure only: fails to make authenticated objection within 20 days after receiving notice of default
When can there be no partial strict foreclosure
In a consumer transaction, a secured party may not keep the collat- eral in partial satisfaction of the debt and seek a deficiency judgment. The secured party may keep the collateral only in full satisfaction of the debt.
consumer goods 60% rule
If the debtor has paid 60% of the cash price on a PMSI in consumer goods, or 60% of the loan on a non-PMSI in consumer goods, the secured party must dispose of the collateral within 90 days after repossession.
If the debtor has paid less than 60%, the general rules apply, including on no partial strict foreclosure in consumer transactions
general rules for resale of collateral
(1) notice
(2) sale must be commercially reasonable
(3) proceeds of the sale must be given to correct people
(4) sec party must follow code rules throughout all of this or may be liable to the debtor
notice rules for resale of collateral
NOTICE TO WHOM:
Selling party must give reasonable notice that is authenticated by the secured party [in writing] to
(1) the debtor and any sureties on the debt
(2) the other secured parties who have notified you of their interests
(3) Any secured party who has perfected by filing a financing statement or making notation on cert of title
NOTICE TIMING:
– within a reasonable time before the sale
– for non consumer transactions, must be 10 days or more before the sale
CONTENTS OF NOTICE
(1) public sale
– notice of time and place of sale
(2) private sale
– notice of the time after which sale will occur
– description of parties
– description of collateral
rules for “commercially reasonable sale”
EVERY ASPECT of the sale (including the method, manner, time, place, and terms) must be commercially reasonable.
The secured party must show that they made an effort to obtain the best price for the collateral.
low price on its own will not make the sale “not” commercially reasonable, but if price is very very low, courts will give extra scrutiny to other circumstances of the sale
The courts will consider:
- The sufficiency of the advertising
- If the collateral had a limited market, whether people in that mar- ket were contacted,
- Whether the collateral needed cleaning or repair,
and
- If the sale was by public auction, the convenience of the time and place
when may secured party buy the collateral at public or private sale
public sale
– sec party may buy the collateral
private sale
– sec party may buy the collateral ONLY if the collateral is of a type customarily sold in a recognized market or is of a type which is subject to price quotations
how to distribute proceeds of the sale
FIRST - repay the costs of repossession and sale
SECOND - pay off the debt of foreclosing creditor
THIRD - pay off debt of creditors with lower priority
FOURTH - debtor gets surplus
secured party’s rights to deficiency judgment
If the collateral when sold doesn’t bring in enough to pay the expenses of the sale and the secured party’s debt, the secured party may recover any deficiency from the debtor.
rights of debtor after sale of collateral when debtor is a consumer
after the sale, the secured creditor must send the debtor an explanation of the calculation of any debt still owed (the deficiency) or money the debtor will receive (the surplus).
effects of failure to comply with code rules
(1) liability for actual damages caused by failure to follow ANY of the code’s rules
(2) consumer goods – debtor is entitled to minimum 10% of the cash price of the goods + an amount equal to interest charges to be paid over the life of the loan
(3) rebuttable presumption that sale proceeds = amount of debt [so sec party loses deficiency]
