Secured Credit Flashcards
What is a secured transaction?
A secured transaction is a transaction intended to create a security interest in personal property or fixtures
How to spot a security transaction:
Look for:
1. a credit transaction (a sale on credit or a loan)
2. an agreement that creates a lien in favor of the creditor on the debtor’s personal property to secure the debt
Who is the debtor
the person who owed payment or perfomance
Who is the creditor
the secured party: a lender, seller, or other person in whose favor there is a security interest
What is a security interest
A security interest is an interest in personal property or fixtures that secures payment or performance of an obligation
What happens with a security interest when default occurs?
When that contigency occurs, the property interest springs to life and the creditor has rights in the debtor’s collateral.
What is collateral?
the property subject to a security interest
what is a PMSI
purchase money security interest - special type of security interst in goods
whaat are the two ways a PMSI can arise
- seller-financed: secured party sells the goods to the debtor on credit and retains a security interest in the goods or
- financer-financed: the creditor loans the funds to the debtor to enable the debtor to buy specific collateral - those funds are used by the debtor to acquire the specific collateral and the creditor takes a security interest in that collateral
What is an after-acquired property clause?
Clause in a security agreement - allows a secured party to obtain an interest not only in a debtor’s present property, but also in property that debtor will obtain in the future
Future Advance Clause
Clause in a security agreement - a secured party contemplates making future loans to the debtor and wants to secure these future advances in the present security agreement
Attachment
deals with those steps legally required to give the secured party a security interest in the collateral that is effective as against the debtor
a creditor is not secured until attachment
Perfection
deals with the steps legally required to give the secured party an interest in the collateral as effective against the world
gives public notice of the security interest to the world
Types of Collateral - goods (tangible Collateral)
- consumer goods
- equipment
- farm products
- inventory
placement depends on how the debtor is using the collateral
what are consumer goods?
goods used or bought primarily for personal, family, or household purposes
what is equipment?
goods that are used or bought for use in a business (also the catch all category)
what are farm products?
crops or livestock or supplies used or produced in farming operations or products of crops or livestock in their unmanufactured states if they are in the possession of the debtor engaged in farming operations
what is inventory?
goods held for sale or lease, goods that are used to be furnished under service contracts, and materials used or consumed in a business in a short period of time
Intangible or Semi-Intangible Collateral
- intruments - pieces of paper representing the right to be paid (promissory notes, drafts, checks, certificates of deposit)
- documents - represents the right to recieve goods (bill of lading, warehouse receipt)
- chattel paper - record that evidences 1) monetary obligation and 2) a security interest in or a lease of specific goods
- investment property - includes items such as stocks, bonds, mutual funds, and brokerage accounts containing such items
- accounts - includes a right to payment (not evidenced by an instrument or chattel paper) for property sold or services rendered
- deposit accounts - nonconsumer, bank account
- commercial tort claims - a tort claim where 1) claimaint is an organization or 2) claimant is an individual, claim arose out of claimant’s business or profession, and claim does not include damages for personal injury or death of individual
- General intangibles - any personal property not coming in the scope of other definitions, patent, trademark, copyrights, goodwill
Is a contractual obligation arising from a loan of money an account?
NO - it is a general intangible
Article 9 applies to: ?
he said this isn’t coming up
- a transaction, regardless of form, that creates a security interest in personal property or fixtures by contract
- a seller’s retention of title
- agricultural liens
- sales of accounts, chattel paper, payment intangibles, or promissory notes
- commercial consignments of goods
- a secured sale disguised as a lease (leases they are intednded to serve as security arrangements)
Rights against the debtor are established by?
Attachment
Rights against third parties are established by?
Perfection
Three Requirements for Attachment
- parties must agree to create the security agreement
- value must be given by the secured party AND
- the debtor must have rights (like ownership) in the property
Requirements of an Authenticated Security Agreement
- evidenced by a record that shows an intent to make a security interest
- agreement must be authenticated (usually means signed, any symbol is good enough)
- must describe the collateral in a way that reasonably identifies it
**NO supergeneric descriptions
What does it mean to give value for a security agreement?
Any consideration sufficient to support a simple contract is value
Past consideration is okay here
What does it mean for debtor to have rights in the collateral?
can have rights (even if they are limited, don’t have to have title)
Rights and Duties of Secured Party in Possession of Collateral
secured party in possession must use reasonable care in storing and preserving the collateral, but is entitled to reimbursment for reasonable expenses in caring for the collateral
Risk of loss of property in the secured party’s possession?
on the debtor to the extent of the insurance deficiency
Who may hold any increase in value of, or profits from, the collateral (except money) as additional security?
the secured party in possession or control
money must be given to debtor applied against secured obligation
Does an after-acquired property clause need to be explicity?
yes
What interest is in the identifiable proceeds?
A security interest will automatically attach to identifiable proceeds of collateral, even without an after-acquired property clause
Proceeds include second generation proceeds
Insurance payable by reason of loss or damage to the collateral is a proceedm unless it is payable to someone other than the debtor or the secured party
Claim arising out of the loss of, defects in, or damage to collateral are also proceeds
Does an after acquired property clause apply to consumer goods?
No, unless the debtor acquires rights in the goods within 10 days after the creditor gives value
Does an after acquired property clause apply to any commercial tort claims?
No
What does it mean for proceeds to be identifiable?
The proceeds can be traced back to the original collateral
What is the lowest intermediate balance rule?
In the case of co-mingled cash proceeds, identifiable proceeds can be traced back using the lowest intermediate balance rule
take the lowest the account ever reached after proceeds put in (but only to the extent of as high as your OG proceeds)
What collateral extends to a supporting obligation (a surety) for that collateral?
The attachment of a security interest in accounts, chattel paper, documents, general intangibles, instruments, investment property
Can a security interest be perfected before it attaches to the collateral?
NO, must become attached before it is perfected. If you take all the steps for perfection first, then perfection occurs upon attachment.
When is a PMSI in consumer goods perfected?
A PMSI in consumer goods is perfected automatically as soon as it attaches
What are the different ways for something to be perfected?
- filing (in the proper place) a financing statement describing the collateral
- taking possession of the collateral
- taking control of the collateral
- automatic perfection
- temporary perfection
How can a security interest in motor vehicles be perfected?
ONLY by notation on the vehicle’s certificate of title
When will a PMSI in fixtures have priority over an enucumbrancer of the real estate?
only if the PMSI holder files a fixture filing
What is perfection by taking possession? (pledge)
Security interests in most types of collateral can be perfected smply by taking possession of the collateral
Security interest perfected from the moment of possession
When collateral is in hands of bailee, the secured party is deemed to be in possession from the moment the bailee authenticates a record acknowledging that it is holdng the collateral for the secured party’s benefit
What types of collateral cannot be pledged?
security interests in general intangibles, deposit accounts, electronic chattel paper, certificate of title goods, and accounts cannot be perfected by possession
Perfection by Control (3 different ways to perfect by control)
- Nonconsumer deposit accounts - the bank in which a consumer deposit account is maintained has AUTOMATIC control over the deposit account
- If the secured party is NOT such a bank, can obtain control over nonconsumer deposit accounts by either:
* putting deposit account in the secured party’s name or
* agreeing in an authenticated record with the debtor and the ban in which the deposit account is maintained that the bank will comply with the secured party’s orders regarding the deposit account without requiring the debtor’s consent
What collateral can be perfected by control?
Security interests in investment property, nonconsumer deposits, and electronic chattel paper may be perfected by control
security interests in nonconsumer deposit accounts can ONLY be perfected by control (unless perfected as proceeds of collateral)
Perfection by Control - Investment Property
A secured party has control of an item of investment property when secured party has taken whatever steps are necessary to have investment property sold without further action from owner
Perfection by Control - electronic chattel paper
A party has control over electronic chattel paper when a system put in place to show the transfer of interests in chattel paper reliably establishes the secured party as assignee
Perfection for motor vehicles
Under the state’s certificate of title law, security interests in motor vehicles required to be titled can ONLY be perfected by notation on the certificate of title issued by the state
How can one perfect by filing?
A secured party may obtain perfection by filing (in writing or electronically) a filing statement
The financing statement must contain:
* debtor’s name and mailing address
* the secured party’s name and mailing address
* a description of the collateral covered by the financing statement
What are the reqs for the debtor’s name when filing a financing statement?
- in most states, if debtor is an individual with an unexpired driver’s license issued by the state where the financing statement is to be filed -> must use name on license
- If debtor does not have such license -> financing statement can include debtor’s individual name (art 9 does not define) or debtor’s personal name or surname
- if debtor is registered org (corp/LP) -> debtor’s name must match its most recent public organic record
Can you use a debtor’s trade name when filing financing statement?
NO
What if there is an error in debtor’s name in financing statement filed?
- minor errors = will not invalidate a financing statement, but seriously misleading ones will
if it would be discovered in filing office search under debtor’s correct name using the filing office’s standard logic search, then it is not seriously misleading
What happens if an office fails to correctly index a filing statement?
Does not impact its effectiveness
What happens if the debtor changes his name?
If the debtor’s name on the filed financing statement becomes insufficient and thus seriously misleading, the financing statement is effective only against collateral acquired by the debtor before the name became insufficient and within 4 months after
For collateral acquired after the 4 month period, the secured party must refile using debtor’s correct name
Description of Collateral in a financing statement
- sufficient if reasonably identifies the collateral
- can be broadly by category or type (art 9 categories) or specific
- FINANCING STATEMENT CAN USE SUPER GENERIC DESCRIPTIONS OF COLLATERAL
Does a financing statement need to mention after acquired property?
Does not need to mention after-acquired property to perfect a security interest in such property if the description in the financing statement is broad enough to cover the after-acquired property
What if there is an error of the secured party’s name in the financing statement?
Does not matter - searches not done in their name and will not make it seriously misleading
Extra requirements for financing statements that cover real property-related collateral (timber to be cut, minerals, fixtures)
- a description of the related real property
- the name of the record owner (if not the debtor) AND
- an indication that it is to be filed in the real property records
What must the debtor do for a financing statement to be effective?
Debtor must authorize the filing in any signed writing either before or after it is filed
In addition, debtor automatically authorizes the financing statement if debtor authenticates the financing statement or authenticates a security agreement covering the same collateral as the financing statement
What can be filed as a financing statement?
An authenticated security agreement itself may be filed as the financing statement if the parties so desire (still must contain all of the elements)
What if a financing statement is missing an address?
The financing statement that does not contain debtor’s and/or secured party’s mailing address is accepted by the filing office and effective anyways
Where must a financing statement be filed?
Generally, centrally in the office of the secretary of state
exception for timber to be cut, materials, fixtures
If the collateral is timber to be cut, or materials, or if the collateral is or is to become a fixture and the filing is a fixture filing, where is filing?
in the county where a mortgage on real estate if filed (locally)
for fixtures, safest to file in real estate records and at place proper if goods were not fixtures
Which state governs perfection?
Important especially for perfection by filing b/c filing must occur in proper state
law of state where debtor is located generally governs perfection of the security interest (generally must file there)
Where is a debtor located?
If individual -> state of their principal residence
registered org -> state under whose laws it is organized
unregistered org -> place of business if it only has one or at its chief executive office if it has more than 1
What are the exceptions to the general state of debtor filing rule?
- possessory security interests and security interests in fixtures and timber to be cut
- goods covered by certificate of title
- deposit accounts
- investment property
- agricultural liens
State governing perfection: possessory security interests (where secured party has possession of collateral) and security interests in fixtures and timber to be cut
law of state in which collateral is located
State governing perfection: goods covered by certificate of title
law of state issuing the most recent certificate of title governs perfection
State governing perfection: deposit account
unless debtor’s agreements with bank provide otherwise, law of state in which ban has its chief executive office governs perfection
State governing perfection: investment property
If collateral is certified security: law of state where certificated security is located governs perfection
If collateral is uncertified security: unless debtor’s agreements with issuer provide otherwise, law of state where issuer was organized governs perfection
if collateral is securities account: unless debtor’s agreements with security intermediary provide otherwise, law of state where securities intermediary’s chief executive office is located
State governing perfection: investment property
Exception-perfection by filing or automatic perfection
If security interest in investment property is perfected by filing, or automatically perfected by securities intermediary, law of state where debtor is located governs perfection
State governing perfection: agricultual liens
governed by law of the state in which the farm product covered by the lien is located
What happens if perfection of a security interest is governed by the law of state in which the debtor is located, and the debtor moves from one state to another?
security interest will generally become unperfected 4 months after the debtor’s move, unless the secured party files a financing statement in the new jx before that 4 month period is up
What if the collateral is transferred to a new owner in a different state?
The security interest will become unperfected one year after the collateral moves unless the secured creditor files a financing statement in the new jx before that one year period is up
What if the perfected security interest in collateral is a possessory security interest (governed by law of state in which collateral is located), and the collateral is moved from one state to another?
the security interest will remain perfected without any further action as long as the security interest is also perfected by possession under the laws of the new state
What happens if a vehicle is moved from one state to another and is covered by a certificate of title issued by the new state? (automobiles and other vehicles)
a security interest in the vehicle that was properly perfected in the original state lasts as long as it would have if the vehicle had not been covered by the new certificate of title
2 exceptions:
* purchasers for value
* clean certificate of title issued in new state
Certificate of title: purchasers for value exception
if a vehicle subject to a perfected security interest in one state is moved to a new state and is covered by a certificate of title issued by the new state, the security interest in the OG state is perfected as against a purchaser for value of the vehicle only until the earlier of:
- time when security interest would have become unperfected in OG state if vehicle had not been covered by new certificate of title (same general rule) ORR
- 4 months after the vehicle is covered by the new certificate of title
certificate of title: clean certificate exception
If the certificate of title issued in the new state does not note the secured party’s interest in the vehicle, these parties have priority over the secured party:
- buyer of vehicle who is not in business of selling vehicles who purchases for value and recieves delivery of vehicle without knowledge of the security interest AND
- a secured party who perfects a security interst in vehicle without knowledge of the other security interest after the clean certificate of title is issued in new state
What happens if the bank, issuer, or securities intermediary moves to a new state?
Perfection of an interest in the deposit account, uncertificated security, or securities account continues until the earlier of:
- time when security interest would have become unperfected in the original state if the bank, issuer, or securities intermediary had not moved to the new state OR
- 4 months after they move to the new state
How long is a financing statement valid for?
5 years
How long is a continuation statement for and when can it be filed?
- A continuation statement may be filed, good for an additional 5 years (adds to financing statement)
- Can only be filed within last 6 months before lapse of filed statement
Who must authorize a continuation statement?
authorization of debtor not required for a continuation statement - secured party may authorize it
Is a secured party obligated to terminate a financing statement?
Generally, not obligated to terminate
But if there is no outstanding obligation of the debtor and no commitment on part of securd party to make further advances, or debtor did not authorize filing of initial financing statement -> if debtor demands termination statement -> secured party must file a termination statement or provide one to the debtor in 20 days
What is the termination statement rule for consumer goods?
Secured party must file a termination statement within 1 month after there is no obligation or commitment
Or if debtor demands it -> within 20 days of demand
Perfection for Proceeds
- if a secured party has perfected security interest in collateral, the secured party automatically has a perfected security interest in any proceeds of collateral for 20 days after reciept of proceeds
Will continue to be perfected beyond 20 days if:
* proceeds are identifiable cash proceeds (CASH PROCEEDS)
* SI in original collateral was perfected by filing a financing statement, a SI in the type of collateral constituting the proceeds would be filed in the same place as the financing statement for the original collateral, and the proceeds were not purchased with cash proceeds of the collateral (SAME OFFICE) OR
* security interest in proceeds is perfected within 20 day period
Temporary perfection for instruments, negotiable documents, and certificated securities
- New value: where new value is given under authenticated security agreement for these, perfection is valid for 20 days after attachment. Filing or possession not necessary
- delivery of collateral to debtor for disposition: when the creditor who has perfected their security interest by possession delivers these in the posssession of a bailee to the debtor for disposition (like debtor giving promissory note as collateral so that debtor can present note to maker for payment), perfection is valid for 20 days. After that, the creditor must reperfect (by filing or taking possession) or lose their perfection
What happens if the debtor changes their use of the collateral?
filed financing statement remains effective to perfect the security interest
Secured party v. secured party
when there are conflicting perfected security interests in the same collateral, priority goes to whichever party was the first to file or perfect (whichever was earlier)
Unperfected secured creditor v. unperfected secured creditor
first to attach has priority
Perfected secured creditor v. unperfected secured creditor
perfected one wins
PMSI superpriority
they are superior to prior perfected secuirty interests in the same collateral if certain conditions are met
PMSI superpriority: goods other than inventory and livestock
has priority over conflicting security interests in the same goods or their proceeds if the interest is perfected before or within 20 days after the debtor recieves possession of the goods
PMSI superpriority: in inventory and livestock
has priority over a conflicting security interest in the same inventory or proceeds of the inventory that are chattel paper, instruments, or cash if:
it is perfected at the time detor gets possession of the inventory (filing must happen before inventory is delivered to creditor) and
any secured party who has filed their security interest in the same authority recieves authenticated notification of the PMSI before the debtor recieves possession of the inventory AND the notification states that the purchase money party has or expects to take PMSI in inventory of debtor described by kind or type
PMSI superiority: consigner has interest in inventory
Under Art 9, a consignor’s interest in the consigned goods is considered to be a PMSI in inventory
A consigner can acquire PMSI superpriority in consigned goods if the consigner complies with the above requirements for gaining it in inventory
What is the rule if more than 1 party has PMSI superpriority in collateral?
- a secured party who has a PMSI in collateral a a seller (seller-financed PMSI) has priority over secured party wo has PMSI in same collateral as lender (financer-financed)
- otherwise, first secured party to file or perfect prevails
When is a PMSI in security goods perfected?
automatically
When is a PMSI in equipment perfected?
can be perfected usually by filing any time within 20 days after the debtor gets possession of the collateral and
when is a PMSI in inventory perfected?
must be perfected (usually by filing) by the time debtor gets possession of the collateral - there is no 20 day grace period - and others with a previously filed security interest in the inventory must be given notice
Special priority for conflicting security interests in investment property
- security interest perfected by control has priority over a security interest perfected by any other method
- if conflicting ones are both perfected by control, they rank according to the time of obtaining control (unless securities intermediary - auto win)
- otherwise, first to file or perfect rule governs
Special priority for conflicting security interests in deposit accounts
- perfected by control has prioity over conflicting security interest that is perfected by another method
- if multiple of them are perfected by control, they rank according to time of obtaining control subject to 2 exceptions:
- secured party who has obtained control by putting the deposit account in party’s name WINS
- bank that has control because it maintains deposit account WINS (unless a party has obtained control by putting account in their name)
If a debtor transfers money or deposit account funds to a person, what does that person take?
takes free of any security interest in the money or fnds, unless transferee acts in collusion with the debtor in violating rights of the secured party
Priority for Chattel Paper Purchasers
If a purchaser of chattel paper in good faith gives new value and takes possession of chattel paper in ordinary course of business (or takes control), the purchaser has priority over
- a security interest in chattel paper that arises merely as proceeds of inventory, as long as chattel paper does not indicate that it has been assigned to anyone other than purchaser AND
- any other security interest in the chattel paper, as long as chattel paper purchaser acquired their interest without knowledge that its purchase violated the rights of the secured party
When else would a chattel paper purchaser have priority in the proceeds of chattel paper?
if either:
1. the purchaser would have had priority under general priority rules (first party to file or perfect) or
2. the proceeds are the specific goods covered by the chattel paper or cash proceeds of the specific goods
When does a purchaser of an instrument have priority over a perfected security interest in the instrument?
if the purchaser gives value and takes the possession of the instrument in good faith without knowledge that the purchase violates the rights of the secured party
Determining the Priority of Security Interests in Proceeds:
- code divides collateral into filing collateral and non-filing collateral
- filing collateral: collateral in which a secured party would normally achieve priority by filing a financing statement
- non-filing collateral: collateral in which a secured party would normally achieve priority by possession or control, rather than filing
General Rule for Proceeds priority
Generally, a perfected security interest in proceeds will have the same date of priority as the perfected security interest in the OG collateral, as long as perfection of security interest in proceeds extends beyond 20 day temporary perfection period
Special Rule for Certain Proceeds of Non-Filing Collateral
secured party has priority in the proceeds of non-filing collateral if:
1. secured party has priority over the OG collateral
2. their security interest in proceeds is perected AND
3. proceeds are cash proceeds or proceeds of same type as OG collateral
If proceeds are proceeds proceeds, all intervening proceeds must be cah proceeds, proceeds of the same type as OG collateral, or accounts relating to the collateral
Exception: Filing Collateral as Proceeds of Non-Filing Collateral:
* if a security interest in original collateral that is non-filing collateral is perfected by a method other than filing, and the proceeds to the OG collateral are filing collateral, the first secured party to file a financing statement covering the proceeds has priority in the proceeds
Secured Party v. Buyer or other Transferee Priority
When a buyer (or lessee) buys or leases something with a security interest on it, the security interest stays on the item, but there are some exceptions
Secured Party v. Buyer or other Transferee Priority: authorized sales
if the sale or lease of the collateral is authorized by the secured party free of the security interest, the transferee takes free of the SI (can be express or implied authorization)
Secured Party v. Buyer or other Transferee Priority: buyer in the ordinary course of business
BIOC takes free of a nonpossessory security interest in goods created by the buyer’s seller, even though SI is perfected and even though buyer knows of SI
this rule also applies to lessees of goods
What is a buyer in the ordinary course?
One who buys goods
1. in good faith
2. without knowledge that the sale violates the rights of another person in the goods AND
3. in the ordinary course of business from a seller in the business of selling goods of the kind purchased
Secured Party v. Buyer or other Transferee Priority: buyers NOT in the ordinary course of business
Buyers or lesseees not in the ordinary course of business:
* take subject to perfected security interests AND
* take free of unperfected security interests unless they know of the security interest when they give value or take delivery
Secured Party v. Buyer or other Transferee Priority: BNIOCB exceptions
- Future advances: buyer or lessee not in the ordinary course of business has priority over future advances or commitments to make future advances by a secured party either after the secured party learns of the purchase or lease or more than 45 days after the purchase or lease
- PMSI grace period: If a secured party attaches a PMSI in the debtor’s collateral before the buyer or lessee without knowledge pays value and recieves delivery, the secured party will have priority over the buyer or lessee if the secured party files within 20 days after the debtor recieves the collateral
Secured Party v. Buyer or other Transferee Priority: consumer to consumer sales (garage sale)
- In the case of consumer goods, a buyer takes free of a security interest, even though it is perfected, if the buyer buys:
1. without knowledge of the SI
2. for value
3. for the buyer’s own personal, family, or household purposes, AND
4. before a financing statement covering the goods has been filed
MUST BE CONSUMER GOODS IN HANDS OF BOTH BUYER AND SELLER
Secured Party V. Holder in Due Course of the Like
A holder in due course of a negotiable instrument has priority over a security interest in the negotiable instrument
What is a judicial lien creditor?
person who has acquired a lien on the collateral through judicial attachment, levy, or the like, or a bankruptcy trustee
Secured Party v. Judicial lien creditor
Judicial lien creditor prevails over the holder of a security interest in collateral if the lien creditor becomes such before the security interest is PERFECTED
prior perfected security interest takes priority over lien creditor
secured party who obtained a security agreement and filed a financing statement (but did not attach and perfect) before judicial lien arose will also have priority as long as they eventually attach and perfect (ADVANTAGE TO FILING)
PMSI V. Judicial Lien Creditor
If the secured party files a financing statement with respect to a PMSI within 20 days after the debtor recieves the collateral, secured party will have priority over a judicial lien arising between time security interest attaches and time of filing
Future Advances v. Judicial Lien Creditor
For perfected future advances to gain priority over a subsequent judicial lien, the future advance must be made 1) without knowledge of lien, 2) within 45 days of the lien arising, or 3) pursuant to a commitment entered into without knowledge of the lien
Secured Party v. Possessory (Statutory Lien Holder)
a possessory lien imposed by other state law in favor of those who supply goods or services has priority over a SI (even perfected) as long as goods or services were provided in the ordinary course of business and collateral remains in lien holder’s possession
Secured Party v. Article 2 Claimant
if article 2 grants a buyer or seller of a possessory security interest in goods, the article 2 claimant has priority over an article 9 secured party as long as the Article 2 claimant retains possession of the goods
What is a default?
A failure to pay or perform -> triggers the right of a secured party to proceed against collateral
after default, what can the secured party do?
after default, the secured party is entitled to take possession of the collateral without judicial process (self help) if it can be done without breach of peace
what happens if the secured party breaches the peace?
secured party loses the authorization to repossess, may be sued for conversion or more torts, and is liable for actual (and frequently) punitive damages
What constitutes a breach of the peace?
- any conduct that has the potential to lead to violence
- generally physical presence by debtor or rep + verbal objection by debtor over repossession is enough
- breaking and entering = BOP
- breaking and entering of commercial property = less likely to be BOP
- cannot hot wire a car sitting in a garage, but maybe a driveway
What can a secured party do if self help is unavailable?
use judicial process (replevin action) to get the goods
Rendering Equipment Unusuable
Without removable, secured party may also make equipment unusable and dispose of it on the debtor’s properrty if possible w/o BOP
Self Help in Accounts
If debtor defaults and collateral is an account, the secured party can notify the person owing money to debtor to make payment to the secured party instead
Strict Foreclosure Rule
After default and repossession, the secured party may retain the collateral in full or partial satisfaction of the debt if secured party:
1) sends its proposal to retain collateral to any other secured party from whom the foreclosing party has recieved notice of claim to the collateral and any other secured party who has perfected a security interest in collateral by filing financing statement or noting its security interest on a certificate of title
if notified party objects within 20 days after secured party sends notice, collateral must be disposed of by sale
2) secured party msut also obtain the debtor’s consent (can be agreement or failure to object)
What are the 2 exceptions to the strict foreclosure rule?
- no partial strict foreclosure in consumer transactions: in a consumer transaction, a secured party may not keep the collateral in partial satisfaction of the debt and seek a deficiency judgment (can only keep in full satis)
- consumer goods 60% rule: if a 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 good, secured party must dispose of the collateral within 90 days after the repossession. If less than 60% paid -> general rules apply
What can a secured party do with the collateral after default?
- May sell, lease, license, or otherwise dispose of the collateral in its condition when repossessed or after reasonable preparation, can be public option or private, can be one or more contracts
What does a resale do to the security interest on collateral?
- discharges the security interest under which sale is being made and all subordinate security interests
- purchaser is still subject to superior security interests
What are the two big factors required for a sale?
- reasonable notification required
* must be authenticated by secured party (cannot be oral)
* given to debtor and any sureties on debt, and except in case of consumer goods to any other secured parties who have notified of interests and to any secured parties who have perfected by filing statement or made a notation on certificate of title
* not necessary when perishable or declining rapidly or kind sold in recognized market (stock)
* debtor can waive right to notice after default in authenticated agreement
* must be within a reasonable time (10 days for nonconsumer)
* public sale: notice of time and place
* private sale: notice of time after which sale will occur
* extra info for consumer goods - sale must be commercially reasonable
* secured party must show they made effort to obtain best price in collateral
* sufficient advertising
* whether collateral needed cleaning or repair
* convenience of sale if public auction
* low price alone - not enough to make it not commercially reasonable
Can a secured party buy the collateral?
- can buy at any public sale
- can buy at private sale only if collateral is type customarily sold in recognized market or type which is subject of widely distributed standard price quotes
Where does the money of a foreclosure sale go?
- first to repay costs of repossession and sale
- then to pay off debt of foreclosing creditor
- then to pay off debt of lower priority creditors
- if any money left -> debtor gets surplus
What if the collateral when sold does not bring in enough to pay the expenses of the sale and secured parties debt?
secured party may recover any deficiency from debtor
what duty does secured creditor have to explain deficiency?
if debtor is a consuemr, after the sale, the secured creditor must send debtor explanation of the calculation of any debt still owed (the deficiency) or money debtor will recieve (the surplus)
What happens if secured party fails to comply with code rules on resale?
- liable for actual damages caused by failure
- if collateral is consumer goods, debtor entitled to minimum of 10% of the cash price of goods plus amount equal to all interest charges to be paid over life of loan
- rebuttable presumption that there is no deficiency
what is the debtor’s right to redeem?
- any time before resale or obligation discharged by secured party’s retention of collateral, debtor can redeem the collateral by tendering fufillment of all obligations any reasonable expenses
what is an acceleration clause and how does it affect the debtor’s right to redeem?
clause allowing creditor to declare entire loan balance due upon default - so debtor would have to tender that entire balance in order to redeeem
what are fixtures?
goods that have become so related to real property that an interest in them arises under real property law (air conditioning, appliances, elevators)
does not apply to ordinary building materials incorporated into the alnd (bricks, lumber, shingles)
how do you perfect an SI in fixtures?
fixture filing in office where a mortgage on real estate would be filed
must reasonably identify the real estate and show the name of owner
what are the rights to the fixture upon default?
if this interst wins priority, holder of SI can remove fixture from real property and debtor must reimburse for costs to remove or damage (if debtor is NOT the owner)
Secured party v. subsequent real estate interest
security interest in fixtures has priority over any real estate interest that is recorded subsequent to the perfection of a security interest by fixture filing
secured party v. prior real estate interest
prior real estate interest that is properly recorded has priority over SI that subsequently arises
PSMI exception: PMSI takes priority over an earlier in time realty interest if perfected by a fixture filing before the goods become fixtures or within 20 days after
Construction mortgages: takes priority over a subsequent PMSI in fixtures even if security interest is perfected by fixture filing within 20 days of addixation
When is fixture filing unecessary?
- secured party does not need fixture file if: readily removable factory or office machines, equipment that is not primarily used or leased for use in operation of real estate, or replacements of domestic appliances which are consumer goods
any method of perfection before they become fixtures entitles secured party to priority
When does a secured party not need to perfect fixtures to have priority?
if encumbrancer or owner of real estate has consented to security interest (in authenticated record) or has disclaimed an interest in the goods as fixtures
or if the debtor has a right to remove the goods as against real estate claimant
what is an accession?
good that is physically united with other goods in such a manner that the identity of original goods is not lost (like tires)
how is accession perfected?
security interest is perfected when collateral becomes accession and SI remains perfected in collateral
```
~~~
priority rules for accessions?
all general rules apply
what is the special priority rule for accesions for vehicles?
security interest in an accession is subordinate to a security interest in a whole (a car) which is perfected by compliance with certificate of title statute
removal of an accession?
secured party can remove an accession from other goods if the accession has priority over the claims of every person with an interest in the whole
responsible for costs of repair or any physical injury to the whole other than the goods
person entitled to reimbursment can refuse permission to remove until secured party gives assurance that they will reimburse
