SECURED TRANSACTIONS
McCULLOUGH
FALL 2011
– A business arrangement
– Where a buyer or borrower
– Grants a security interest in property (collateral)
– To a seller or lender
– To guarantee payment of an obligation
NINE-STEP ANALYTICAL METHOD- COURSE ROAD MAP
Advantages of Secured Transactions
IDENTIFY THE PERSONAL PROPERTY AT ISSUE IN THE QUESTION WHICH MIGHT ACT AS COLLATERAL FOR SOME ALLEGED SECURED PARTY.
CLASSIFY THIS PROPERTY ACCORDING TO THE DEBTOR’S USE.
IDENTIFY POSSIBLE CLAIMANTS TO THE PROPERTY.
ARE THE CLAIMANTS’ TRANSACTIONS WITHIN THE SCOPE OF ARTICLE 9?
DOES EACH CLAIMANT HAVE AN ATTACHED S.I. IN THE DEBTOR’S PROPERTY AT ISSUE OR DID THE CLAIMANT GET ITS S.I. BY OPERATION OF LAW?
WHAT TYPE OF S.I. DOES THE CLAIMANT HAVE? PMSI OR NPMSI?
DID THE ALLEGED CLAIMANT MAKE SURE THAT IT PERFECTED ITS SECURITY INTEREST IN THE PROPERTY.
CLASSIFY ALL COMPETING CLAIMANTS TO THE PROPERTY (FOR EXAMPLE, UNSECURED CREDITOR, UNPERFECTED SECURED CREDITOR, PERFECTED PM SECURED CREDITOR, PERFECTED NPM SECURED CREDITOR, JUDGMENT CREDITOR WHO LEVIED TO INCLUDE A B/R TRUSTEE, POSSESSORY LIENOR OR AGRICULTURAL LIEN CREDITOR).
WHICH CLAIMANT HAS PRIORITY TO THE PROPERTY?
Collecting Debts Generally
Section 1: Creating Debt
Obligor: Person who owes the obligation
Obligee: Person to whom the obligation is owed
In personam Obligation: the obligation owed by the obligor (person)
Consumer Protection: Basic contract law, to include the Uniform Consumer Credit Code; usury laws; Federal Trade Commercial Regulations; Truth in Lending Act; Equal Opportunity Act
How do Liens Arise?
Judicially: By Judgment/Levy/Execution Lien
Consensually: By Contract/Consensual lien (personal & real property)(S.I. granted)
Statutorily: By Statute/Statutory Lien
– Tax Lien
– Mechanic’s Lien
– Landlord’s Lien
– Attorney’s Lien
– Bankruptcy Trustee
Section 2: Collecting Debts Nonjudicially
Advantages to being a secured Creditor
– In rem relief: available to the Secured Creditor of the Obligor who cannot fulfill his in personam obligation OR specific property has been designated to substitute for the Obligor’s failure to meet the in personam obligation
– Collection is easier and quicker!!: Upon debtor default, the SP may immediately go repossess the pledged property, But without a breach of the peace.
Collection of Debt (Informal Methods)
– Phone Call
– Letter (bill)
– E-mail
– Setoff-maturity and mutuality
Setoff: This is available when two people each owe money to the other and “allows a creditor to apply one mutual debt against another to ‘avoid the absurdity of making A pay B when B owes A. In order to exercise the right of setoff, the debts must be both mature and mutual.
Mature: due and owing
Mutual: owed in the same capacity.
Fair Debt Collection Practices Act
(a) Which Debts 15 USC § 1692(a)(5): obligation of consumer to pay money arising out of transaction where the consumer products or services purchased are primarily for personal, family or Household use, whether the obligation is reduced to judgment or not.
(b) Debt Collector 15 USC §1692(a)(6):
o Person who
o Uses instruments of interstate commerce or the mail and
o Is in a Business, the principle purpose of which is debt collection of any debts OR who regularly collects debts directly or indirectly.
Section 3: Collecting Debts Judicially
FORMAL METHOD- 12 STEPS
1. File & Serve Lawsuit for failure to pay the debt (What is your end game?)
2. Prejudgment Remedies:
* Attachment- directed at Debtor
* Garnishment- directed at third party
Default/Settle/ Litigate
3. Judgment- Enter of Record in County Records
4. Execute on Judgment: Process to collect on the judgment
5. Post- Judgment Discovery (“supplemental proceedings”)
6. Private Investigator
7. Obtain Writ of Execution (or Writ of Garnishment)
8. Deliver Writ to Sheriff
9. Sheriff Levys or Seizes Certain Property*-Execution Lien arises.
ization proposed
» Creditors VOTE on plan
» Court confirms plan
» Creditors paid all or part of their Debt according to confirmed plan
Section 4: Collecting Debt Secured by Consensual and Statutory Liens
Collection Advantage: this is an advantage of having a statutory or consensual lien because it is far easier and usually less expensive for the creditor to obtain possession of the collateral and sell it than it is to go through the entire judgment and execution process.
Priority Advantage: obtaining a lien on property to secure a debt is that the lien fixes the priority of the lienholder’s claim to that asset as against other creditors who may claim an interest in that asset.
Problem 1-4 Review:
Answer: Enter into a SECURED Transaction
– Pre-designated property secures the debt
– Collection is easier. Immediately Repo!!
– State exemption rights DO NOT APPLY to the property pledged as security
– Bankruptcy merely stalls repossession and sale of the pre-designated property UNLESS the Secured Creditor FAILED to properly create and perfect its security interest or acts fraudulently under the Bankruptcy Code!!
Bankruptcy: Secured creditors fare much better than unsecured creditors in the debtor’s bankruptcy proceeding. Bankruptcy discharge operates on the debtor’s “in personam” personal liability for debts, not the debt itself. Thus, guarantors of the debtors obligations remain liable on their guarantees. Similarly, encumbered property retains its “in rem” liability.
Automatic Stay: Secured Creditors may be able to circumvent the automatic stay that is issued by the bankruptcy court and get their money quicker than unsecured creditors.
