ST: Default

Question 1

What are the 5 options a secured party has when the debtor defaults?

Answer 1

1. Self-Help Repossession,
2. Repossession by Judicial Action,
3. Strict Foreclosure,
4. Sale,
5. Action for a Deficiency Judgment

Question 2

When must a secured party stop attempting to repossess through self help?

Answer 2

Self-help is permissible so long as a creditor does not breach the peace. ANY protest (even weak) by the debtor means the creditor must stop and seek judicial action.

Question 3

If a creditor misuses color of law (by impersonating an officer) and the debtor does not object to the repossession, is this okay?

Answer 3

No - impersonating law enforcement is considered a constructive breach of the peace.

Question 4

Can a secured party enter a debtor’s home to repossess an item without consent?

Answer 4

No - a secured party needs voluntary and contemporaneous consent to enter a debtor’s home to repossess the collateral.

Question 5

What happens when a creditor is granted repossession by judicial action?

Answer 5

they get a judicial writ that orders the sheriff to obtain possession of the collateral and deliver it to the secured party. It’s called a “writ of replevin” in NY.

Question 6

When is it advisable to have a strict foreclosure on collateral?

Answer 6

When the value of the collateral is equivalent to the value of the outstanding debt.

Question 7

What is a strict foreclosure?

Answer 7

The creditor takes back the collateral in complete satisfaction of the debt.

Question 8

What must a secured party do before foreclosing on the collateral?

Answer 8

Send a written proposal to retain the collateral.

Question 9

To whom must a written proposal for strict foreclosure be sent: if the collateral is a consumer good?

Answer 9

1. Debtor, and

2. Secondary obligors (guarantors)

Question 10

To whom must a written proposal for strict foreclosure be sent: if the collateral is not a consumer good?

Answer 10

1. Debtor,
2. Other secured parties who have notified the foreclosing creditor about their security interest,
3. Perfected creditors, and
4. Secondary obligors

Question 11

What happens to the strict foreclosure if any of the notified parties objects for any reason within 20 days after notice was sent?

Answer 11

The strict foreclosure will not be allowed. Instead, the collateral must be disposed of by sale.

Question 12

What is the 60% Rule?

Answer 12

When the collateral is a consumer good, a debtor is protected from strict foreclosure if they have paid 60% or more of the cash price for the good or the loan (if not a PMSI).

The secured party must sell the collateral within 90 days or be liable in conversion.

Question 13

Who decides when a sale of collateral is through a public auction or private sale?

Answer 13

The secured party.

Question 14

What must the creditor due prior to the sale of collateral?

Answer 14

Send reasonable notice (Art. 9 standard notice forms are presumptively commercially reasonable).

Question 15

What must the notice entail if the sale is public?

Answer 15

Time and place of the sale.

Question 16

What must the notice entail if the sale is private?

Answer 16

The time after which the sale will be made.

Question 17

If the collateral is consumer goods, what else must the notice include?

Answer 17

How to calculate any deficiency, and how the debtor can redeem.

Question 18

How much advance notice is required before a sale of collateral?

Answer 18

“Commercial reasonableness” standard is used.

In a non-commercial transaction, notice is reasonable if sent 10+ days before the sale.

Question 19

May the secured party buy at a sale?

Answer 19

Yes, if it’s public.

No, if it’s private (too much opportunity for self-dealing).

Question 20

When can a secured party bring an action for deficiency judgment?

Answer 20

When the collateral is worth less than the outstanding debt (you know what the collateral is worth because of its sale price).

Question 21

If the secured party sells the collateral at a really low price to an inside buyer, what price will control for purposes of deficiency judgments?

Answer 21

The price an independent third party would have paid rather than the actual amount paid.

Question 22

What is a debtor’s right to redemption?

Answer 22

Debtor can redeem until the secured party has resold or completed a strict foreclosure.

Question 23

What must the debtor do to redeem?

Answer 23

Pay the amount owed, plus interest, plus costs (including reasonable attorneys fees).

The amount owed could be late payments, or if the security agreement had an acceleration clause, the entire balance of the debt.