Rights on Default

Question 1

Default

Answer 1

Debtor has breached security agreement

Question 2

Creditors’ Rights under Article 9

Answer 2

(1) Self-help Repossession; (2) Repossession by Judicial Action; (3) Strict Foreclosure; (4) Sale; (5) Action for a Deficiency Judgment

Question 3

Self-help Repossession

Answer 3

Permissible as long as creditor does not breach the peace, which occurs when the secured party’s actions are likely to cause violence [debtor-protective standard, all debtor has to do is say stop]
Repossessor cannot misuse the color of law by dressing up like a police officer to repossess; that’s constructive force

Question 4

Repossession: Collateral Location

Answer 4

Repossessor cannot enter debtor’s home without voluntary and contemporaneous consent, but may take the collateral located outside the home as long as there is no debtor objection

Question 5

Repossession by Judicial Action

Answer 5

Secured party may get a judicial writ ordering the sheriff to obtain possession of the collateral and deliver it to the secured party

Question 6

Strict Foreclosure

Answer 6

Occurs when secured party retains the collateral in full satisfaction of the debt still owed (cancels the debt)

Question 7

Strict Foreclosure: Procedure

Answer 7

Secured party sends a written proposal to retain the collateral in satisfaction of the debt to the debtor and secondary obligors (consumer goods) or to the debtor, other known secured parties, perfected creditors, and secondary obligors (not consumer goods). If notified parties object within 20 days after notice is sent strict foreclosure is not allowed and must do a sale.

Question 8

Strict Foreclosure: 60% Rule

Answer 8

If the collateral is consumer goods and the debtor has paid 60% of the loan in the event of a non-PMSI or 60% of the cash price in the event of a PMSI, strict foreclosure is not allowed; instead the secured party must sell the collateral within 90 days or be liable for conversion

Question 9

Sale

Answer 9

Secured party may sell, lease, or license collateral either in its condition when taken or after COMMERCIALLY REASONABLE preparation or processing. disposition may be by either public (auction) or private sale

Question 10

Pre-Sale Requirements: Notice

Answer 10

Reasonable notice. If consumer goods is collateral, notice to debtor and secondary obligors; All other types require debtor and known secured parties and perfected creditors and secondary obligors
Content of notice: If public sale, notice must state time and place of sale; If private, must state time after which the sale will be made; If consumer goods, must also include how to calculate deficiency and how to redeem

Question 11

Secured Party’s Ability to Buy at Sale

Answer 11

Public sale: OK to buy; Private sale: not OK absent external market checks because the potential for self-dealing is too high

Question 12

Action for Deficiency Judgment

Answer 12

If sale for collateral nets less than the outstanding debt, the secured party can proceed against the debtor for a deficiency judgment

Question 13

Deficiency Judgment: Calculation When Selling to Insider

Answer 13

If secured party sells collateral at low price to an insider buyer, the price that an independent 3P would’ve paid, rather than the actual amount paid, is the price that will be used in calculating the deficiency

Question 14

Debtor’s Limited Right of Redemption

Answer 14

Debtor has right to redeem collateral until secured party resells or completes a strict foreclosure; Must redeem by paying missed payments + accrued interests and creditor’s real expenses incl. atty fees
If security agreement contains acceleration clause, debtor must pay off the entire debt + interest + expenses