Secured Transactions - Default and Remedies

Question 1

What are the rights of a secured party after default?
(Generally, tangible property, and accounts/ instruments/ chattel papers)

Answer 1

Upon default, a secured party may reduce a claim to judgment, foreclose, or otherwise enforce the claim.

A secured party has the right to repossess tangible collateral.

If collateral consists of accounts receivable or instruments or chattel paper, secured party can call upon person obligated on the collateral for payment to the secured party.

Question 2

What is repossession? (seizure or foreclosure on collateral)

Answer 2

Method by which secured creditor satisfies debtor’s obligation after debtor defaulted by taking possession of the collateral

Question 3

How can a secured party repossess (foreclose) on the tangible collateral?

Answer 3

Possession can be done with or without the judicial process, but if done without, it can only be accomplished without the breach of peace

• known as “self-help”
• can’t go inside a locked building or a home

Question 4

What is the remedy of replevin?

Answer 4

The creditor seizes the property subject to a lien or other security interest
- this is the judicial process/civil action of repossessing the the security interest

• property subject to replevin is usually sold at auction with proceeds used to pay off debt

Question 5

After default and respossession, what are the Secured party’s rights to dispose of property?

What is the condition of the propoerty disposed of?

Answer 5

• Sell, lease, license or dispose of collateral
• in its present condition OR following any good-faith, commercially reasonable preparations of processing

Question 6

All aspects of the disposition of property must be _________.

Answer 6

Commercially reasonable

• includes time, place, method, other terms. disposal may be held at public or private sale

Question 7

A sale is considered commercially reasonable if:

Answer 7

(1) it is made in the usual manner on any recognized market
(2) at the price current in any recognized market at the time
(3) otherwise in conformity with reasonable practices among dealers of that type of property

*bad timing not enough to say sale was commercially unreasonable

Question 8

Before disposing of collateral, what are the notification requirements?

Answer 8

Secured party must
- run UCC searches before disposition to identify stake holders and
- notify
(1) the debtor and
(2) any secondary obligor (guarantor)
(3) other secured parties or lienholders who requested notice
of impending disposition

• doesn’t apply to perishable goods
• can be waived by debtor

Question 9

What are the duties of the Secured party to the collateral?

Answer 9

(1) cannot hold collateral indefinitely
(2) duty to maintain property (keep in good condition before auction)
(3) the disposition method must be reasonable
(4) duty to take care of the collateral in its possession

Question 10

What is acceptance of collateral?

Answer 10

A secured party has the option to accept collateral in total or partial satisfaction of secured debt .

Question 11

What are the requirements to accept the collateral as satisfaction?

Answer 11

(1) acquiescence
* for partial satisfaction - debtor must expressly consent to an amount of partial satisfaction in an authenticated record (SOF) AFTER the default

• for full satisfaction - debtor can consent with an authentic record or by deemed consent if he fails to respond to secured party’s notice to accept within 20 days.

(2) confirm that no parties entitled to notice object to the acceptance of the collateral

Question 12

Define deficiency after disposition.

Answer 12

if the collateral does not bring enough at sale or collection to pay the outstanding obligations, the secured party is entitled to a judgment for the deficiency (except where it’s sale of accounts/instruments, etc.)

Question 13

What happens to any surplus from sale to satisfy debt?

Answer 13

The secured party must pay to the debtor any surplus.

Question 14

What is redemption?

Answer 14

Debtor has a right to redeem collateral held by secured party in advance of sale in exchange for fulfillment of oblications (repayment of loan)

Question 15

What is the priority of payments made after the sale?

Answer 15

(1) reasonable expenses of collection and enforcement and preparation of disposition of property, including reasonable atty fees
(2) satisfaction of obligations secured by the security interest under whch the collection.enforcement. disposition is made,
(3) the satisfaction of any junior secured parties who have provided demand

• if foreclosing party is not the senior secured party, the sale does not extinguish the senior party’s lien and purchaser takes property subject to that senior lien