Default and enforcement
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Default and Enforcement. Enforcement: Cumulative Remedies. Proceed under non-UCC law, and satisfy a judgment out of almost any asset the Debtor owns; Proceed under the UCC, and repossess the collateral (self-help).  [9-601; 9-609]

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Default and Enforcement

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Default and enforcement

Default and Enforcement


Enforcement cumulative remedies

Enforcement: Cumulative Remedies

  • Proceed under non-UCC law, and satisfy a judgment out of almost any asset the Debtor owns;

  • Proceed under the UCC, and repossess the collateral (self-help).  [9-601; 9-609]

  • OR, the SP can do both, but only entitled to one satisfaction.


Repossession self help

Repossession: Self-Help

  • No notice required under the code (but see revised 1-304, or contract modification theories).

  • No court case or supervision required -- self help.  [9-609]

  • Repossession must be accomplished without "breach of the peace." [9-609(b)]


Repossession breach of peace

Repossession: Breach of Peace

  • Breach of the peace standard: a personal and unequivocal objection to repossession is usually enough. (but see cases like Williams v. Ford Motor Co.).

  • A breach of the peace also occurs if an enclosed area is entered (e.g., breaking into a garage).

  • If Breach of Peace occurs, under 9-625(b), SP may be liable for damages.


Notice of disposition

Notice of Disposition

A secured party must send a "reasonable

authenticated notice of disposition” to:

  • the Debtor;

  • secondary obligors;

  • (if non-consumer goods): any other secured party, interest holder, or lien holder, as of 10 days before the notification date.


Contents of notice

Contents of Notice:

  • In commercial (non-consumer) transactions, the notification must include:

    • The debtor and secured party;

    • The collateral to be disposed;

    • The method of disposition;

    • The debtor's right to an accounting;

    • Time and place for public disposition; Time after which for private disposition;

  • In commercial (non-consumer) transactions, the notice may be sufficient if it contains minor errors.  [9-613(3)]


Contents of notice consumer

Contents of Notice (Consumer)

  • A consumer notice must contain all of the above, plus:

    • A description of any liability for deficiency;

    • A telephone number for paying the full amount to redeem the property;

    • A telephone number or address for additional information about the disposition.


Penalties for failure to comply

Penalties for Failure to Comply

  • In non-consumer cases, the UCC adopts a rebuttable presumption that at a complying sale, the price would have equaled the remaining debt.

  • In consumer cases, courts are free to apply non-UCC rules (often "Absolute Bar").


Disposition

Disposition

  • Disposition must be at a “commercially reasonable sale”.  [9-610(b)]

  • Parties may agree by contract (within limits) as to what is commercially reasonable.  [9-603]

  • Secured Party may purchase the collateral at a public sale.  [9-610(c)]


Commercially reasonable disposition

Commercially Reasonable Disposition

  • A disposition is commercially reasonable if it is “in conformity with reasonable commercial practices among dealers in the type of property that is the subject of the disposition.” See §9-627(b)(3)

  • The fact that a higher price could have been obtained at a different time or in a different method from the one the SP selected is not of itself sufficient to preclude the SP from establishing that the disposition was made in a commercially reasonable manner. See §9-627(a)


Liability for deficiency in nonconsumer actions

Liability for Deficiency In nonconsumer actions:

  • A debtor gets any surplus of sale over amount owed, and the obligor (who is usually the debtor) is liable for any deficiency. 9-615(d)

  • A debtor's deficiency can be limited to the difference between the outstanding debt and the fair market value when a "commercially reasonable sale" to the SP or related party results in a lower price than a sale to a third party would have yielded.


Liability for deficiency in consumer transactions

Liability for Deficiencyin Consumer Transactions

  • Under §9-616 if after disposition the debtor is either entitled to a surplus liable for a deficiency, the SP may have to give the debtor a detailed explanation of how the surplus or deficiency was calculated.

  • No surplus or deficiency, no need for explanation.

  • If SP sends consumer obligor a waiver of SP’s right to deficiency, no explanation required.


Transfer statements

Transfer Statements

  • §9-617 empowers the selling SP to pass “all of the debtor’s rights in the collateral” to the transferee (a person who buys at a foreclosure sale), and warranties of title, possession, quiet enjoyment, and the like, are made unless disclaimed.

  • §9-619 helps the SP and the transferee, i.e. an automobile that was used as collateral, that is subject to a certificate of title statute and the record owner won’t voluntarily indorse the title and deliver it to the SP.

    • It allows a transfer of title to the SP if the transfer statement is sought before disposition, or to the transferee if obtained after disposition.


Secondary obligors

Secondary Obligors

  • See §9-102(a)(71)

  • Generally known as a “guarantor.”

  • Under §9-611(c), secondary obligors, as well as debtors, are entitled to notification of disposition.

  • No waivers of right to a commercially reasonable disposition or notification of disposition


Acceptance of collateral in satisfaction of debt strict foreclosure

Acceptance of Collateral in Satisfaction of Debt:Strict Foreclosure

  • To escape the requirements of commercial reasonableness, and the traps posed by notification, the SP may be willing to give up its right to any deficiency. 

  • The debtor may be willing to abandon the current payments made for the collateral, and to simply surrender the collateral.

  • The UCC encourages "Strict Foreclosure," a "walk-away" agreement where the SP takes back the collateral and both parties walk away.


Acceptance of collateral in satisfaction of debt full strict foreclosure

Acceptance of Collateral in Satisfaction of Debt: Full Strict Foreclosure

  • In non-consumer cases, Full Strict Foreclosure (the entire debt is forgiven, the collateral is repossessed) can be accomplished by:

    • Consent. §9-620(a)(1)

    • Silence (20 day rule). §9-620(a)(2)]

  • In consumer cases, Full Strict Foreclosure can be accomplished only by consent.  If the Debtor has paid for 60% of the price of a consumer good, Disposition is required, and Full Strict Foreclosure is not an option


Acceptance of collateral in satisfaction of debt partial strict foreclosure

Acceptance of Collateral in Satisfaction of Debt:Partial Strict Foreclosure

  • In non-consumer cases, partial strict foreclosure (only part of the debt is written off, and a deficiency remains), can only be accomplished by consent.  9-620(c)(2)

  • In consumer cases, NO partial strict foreclosure.  9-620(g)


Effect of collateral or acceptance on third parties

Effect of Collateral or Acceptance on Third Parties

  • Transferees: §9-617(a)(1) allows SP to make a transfer of all the D’s rights

  • Junior Security Interests or Liens: foreclosure sales cut off rights of junior lien holders (JLH).

    • JLH are entitled to any surplus or they become unsecured creditors

    • SP must give notice to JLH if it received an authenticated notice of claim before sale notification

    • And if JLH perfected its interest by filing a financing statement. § 9-611(c)(3)

    • SP must search files.

  • Junior lien holders must send foreclosing SP “an authenticated demand for proceeds before distribution of the proceeds is completed.” §9-615(a)(3)(A)


Collection of rights of payment

Collection of Rights of Payment

  • With non-goods collateral such as accounts, and instruments, if the debtor who gave a SI in the collateral defaults, the SP can notify the person owing money to the debtor, i.e., the account debtor, to make payment to the SP rather than to the debtor.

  • Upon notification, the account debtor must pay the SP rather than the debtor. See §9-607.


Redemption

Redemption

  • Until the secured party has sold the collateral or has discharged the debt by retention of the collateral,

    • Debtor

    • Surety or

    • Any other SP or lien holder, unless she has otherwise agreed after default

  • May redeem the collateral by paying all obligations secured by the collateral plus the reasonable expenses incurred by the SP in relation to the repossession, including reasonable attorney’s fees. § 9-623


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