Secured Transactions Outline

SECURED TRANSAXS OUTLINE
 
PART ONE – THE C-D RELATIONSHIP
I.          Cs Remedies Under State Law
 
A.        Remedies of Unsecured Cs Under State Law
1.         An unsecured C
a.         A C is anyone who the D owes a legal obligation that can be reduced to a money judgment
b.         A C is unsecured unless he
(1)        contracts with the D for secured status OR
(2)        is granted secured status by statute
c.         A C is a judgment C if he has obtained a court judgment which establishes liability. HOWEVER, a judgment C is still unsecured.
2.         Unsecured Cs compelling payment
a.         Must follow judicial procedure established in the state; generally
(1)        Obtain a judgment
(2)        Execute against property – file execution with sherif; property is seized and sold; proceeds applied to judgment; sherif files verified statement of when and how much.
(3)        More than one execution is allowed on a judgment
(4)        Once the sheriff returns it, C must obtain a new writ of execution
(5)        Sheriff must follow reasonable requests of C executing. If the sheriff fails to perform a legal duty in respect to a writ of execution and the judgment C is damaged, the sheriff may be subject to amercement in the amount of that loss or damage.
b.         Self-help seizure is prohibited – will usually make C liable for conversion and/or chargeable with larceny
c.         C may set off a debt which owes to the D against a debt which the D owes the C
3.         Limitations on compelling payment
a.         C should use discovery because sheriff only has to act on clear directions about what to get and where to get it. REMEMBER, discovery can be long and painful.
b.         C can be liable for damages to third party if property belongs to them
c.         Once C discovers assets, D may move them. BUT, most states have outlawed fraudulent transfers for purpose of hiding the collateral. Also, under BK  727(a), a D who hides property a year before BK will be denied forgiveness of debt.
d.         Attaching property before judgment is severely limited (might need proof of a fraudulent transfer).
e.         Absent fraudulent transfer, D can give all assets to any C – preference. (Problem only when entering BK).
f.          Certain property may be exempt by statute from execution.
 
B.        Security and FCLR
1.         Nature of security
 
a.         Lien – a charge against or an interest in property to secure payment of a debt or performance of an obligation. Definition from Bk  101. If debt is not paid then C can compel application of the the value of the collateral.
(1)        Most common type is a S/I- Most broad definition – any lien created by contract between D and C.
(2)        Liens may be granted by statute (statutory liens)
(3)        Judicial liens may be obtained through judicial process by unsecured Cs.
b.         FCLR – the process by which the C forces payment of a lien.
c.         Usefulness of property as collateral depends on
(1)        what it will bring at a FCLR sale
(2)        how much D is willing to pay to keep it.
d.         S/I is a property right that is contingent upon nonpayment of debt. If there is no default then S/P can do nothing.
e.         S/Ps security is usually at a cost to unsecured parties, who will have nothing to seek if D becomes insolvent.
f.          Intended as security doctrine – found in U.C.C.  109(a)(1). The provisions of article 9 are in effect for any transAX that creates a S/I, regardless of the form of the contract, such as when it purports to be a sale. There is a common law doctrine that has the same effect on real property. Enunciated in Basile v. Erhal Holding Corp., text page 30.
2.         FCLR procedure – transfers ownership from the D to the C, as opposed to transfer of possession. Real estate varies by state, but article 9 provided uniformity for personal property. **NOTE: Under article 9, secured parties may use judicial FCLR methods if they prefer. U.C.C.  9-601(a).
a.         We need a formal procedure because
(1)        we need to sort out conflicting priorities in the collateral
(2)        the D may need to redeem himself
(3)        a valuation process is needed for the collateral
 
b.         Judicial FCLR – FCLR accomplished by entry of a court order – typically for real property.
(1)        C with S/I files a civil AX against D, detailing the transAX and requesting FCLR.
(2)        Absent any rare defenses by the D, like a technical fault in the complaint, once C established entitlement, court will enter a final judgment of FCLR, which will typically include a date for the FCLR sale.
(3)        The sale must be advertised after the final judgment of FCLR, advertised by the person who will conduct the sale. Adds time to the process.
(4)        Oral bids are generally used at the auction. Highest bidder is certified upon receipt of the money, usually immediately, occasionally within a day or two.
(5)        Most JXs next require that the court confirm the sale. Some require a hearing only if there are objections, like about the way the sale was advertised or the about the place in which it was conducted.
(6)        Finally, the sheriff or clerk disburses the sale proceeds. Surplus goes to D. More commonly, theres a deficiency, for which the C can request a deficiency judgment. In many JXs, the deficiency judgment is prohibited or at the courts discretion in particular kinds of cases.
(7)        Generally, with real property, D stays in possession until the court confirmation. If D wont leave, then the PURCHASER can ask court for a writ of assistance (also called writ of possession), which directs the sheriff to remove D and put purchaser in possession.
(8)        A D can hold up this process by objecting and taking lots of time. Case in book took over five years from j