Secured Transactions - Default Flashcards
When has a default occurred?
Debtor has breached the contract [not defined in article 9, defined in the security agreement].
May a creditor use self-help repossession?
Yes, so long as the creditor does not breach the peace.
A breach of the peace occurs when the secured party’s action are likely to cause violence. [Don’t do something provocative]
Repossession over protest by debtor is breaching the peace.
If you don’t use self-hep, a creditor can obtain a judicial writ, ordering the sheriff to obtain possession of the collateral and deliver it to the secured party.
When can a creditor using self-held collect collateral in a debtor’s home? Outside the home
SP may not enter the debtor’s home without voluntary and contemporaneous consent.
SP may take collateral outside the home so long as there is no debtor objection.
What is a strict foreclosure?
A strict foreclosure occurs when the secured party retains the collateral in full satisfaction of the debt still owed. [value of collateral approximates the value of the outstanding debt]
Creditor lawfully retains the collateral and the debt in turn is canceled.
How can you strictly foreclose?
The secured party must send a written proposal to retain the collateral in satifaction to the debt.
For consumer goods - send notice to the debtor and secondary obligor (guarantor).
Not consumer goods - send to the debtor and other secondary parties who have told the foreclosing creditor of their security interest in the collateral as well as perfected creditors and secondary obligors.
If any notified party objects within 20 days then the strict foreclosure will not be allowed. Instead, collateral must be disposed of by sale.
What is the 60% rule for consumer goods and strict foreclosure?
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, secured party must sell the collateral within 90 days or be liable in conversion.
Rationale: Avoiding giving creditors a potential windfall at debtor’s expense.
What are the guideposts for a sale of collateral?
(1) Every aspect of the sale must be commercially reasonable.
(2) Prior to the sale, reasonable notice must be sent.
Article 9 standard notice forms are presumptively commercially reasonable.
Note: Secured party chooses whether the sale will be public or private.
Who must notice be sent to and how far in advance?
Consumer goods - notice must be sent to debtor and secondary obligor.
All other types of collateral - notice must be sent to debtor and those secured parties who have advise the foreclosing party of their security interest as well as perfect creditors and secondary obligors.
Advance notice is based on commercial reasonableness.
For nonconsumer transaction notice is deemed reasonable if sent 10 days or more prior to time of the sale.
What should be the content of the notice?
For a public sale - notice of the time and place of the sale.
Private sale - notice must state the time after which the sale will be made.
Can the secured party buy at the sale?
Public Sale - YES
Private sale - NO unless there are external market checks.
What is an action for a deficiency judgment/
If the collateral is sold for less than the amount owed, a creditor can proceed against the debtor for a deficiency judgment.
Note: If a secured party sells collateral at a low price to an insider, the deficiency judgment will be calculated based on what an independent 3P would have paid.
When does a debtor’s right to redeem the collateral end?
When the secured party as (i) resold the collateral or (ii) completed a strict foreclosure.
How can a debtor redeem collateral?
Must pay the missed payments plus any interest and the creditors reasonable expenses including attorney’s fees.
IF acceleration clause - must pay off the entire debt plus interest plus expenses.
