MASTER SECURED TRANSACTIONS OUTLINE
Chapter 1: Creditors’ Remedies Under State Law
Assignment 1: Remedies of Unsecured Creditors Under State Law
A. Who Is an Unsecured Creditor?
Creditor: anyone owed a legal obligation that can be reduced to a money judgment is a creditor of the party owing the obligation
A lender of money
A car crash victim
· Secured Creditor: Creditor required debtor to get a surety (guarantor) to back up the debtor’s promise OR to furnish collateral (the debtor’s own property) that can be seized w/o court action in the event of default.
Security interest: Right to seize the property on debtor’s default.
· Unsecured Creditor: (general creditor) All the creditor gets is the debtor’s promise to pay (does not give any type of security for the loan).
B. How Do Unsecured Creditors Compel Payment?
· The law provides procedures for the collection of unsecured debts, and it regulates or bans outright many alternatives—very difficult to collect
No self-help seizure—could be conversion
Can’t demand payment in an unreasonable manner
Vitale v. Hotel California
P gets judgment against D. P gets writ of execution for sheriff to collect money from bar. There are various problems with bar cooperation and the sheriff’s cooperation
Successive levies are possible under one writ of execution. If property levied is not sufficient, a return should not be made with out a showing that attempting another levy would be fruitless.
A sheriff may refuse to levy as instructed by a plaintiff, on the basis that the request is unreasonable or onerous. However, in this case, the sheriff would have had to levy 9 times. This may be unusual but it is not in itself unreasonable and, under the circumstances, was not excessive since the bar was basically a summer operation.
The conduct of Sheriff and his office in respect to the writ subjected him to amercement. The sheriff is held responsible for P’s judgment—now he has the right to go collect the debt from the bar for himself
Amercement: a judgment creditor may hold a sheriff liable for failing to properly execute against a judgment debtor
Always want to be a secured creditor
Once you have judgment you have to collect it (use sheriff)
Sheriff may not find assets, you could be SoL.
Your job as P’s lawyer is to find out where the assets are and point the sheriff in the right direction.
C. Limitations on Compelling Payment
· The judgment creditor has an obligation to use discovery to locate assets, and the sheriff will only act on clear directions about what to get and where to get it
· Assets are hard to find—debtors can move or transfer title—“fraudulent transfer”
· Creditors may be eligible for a “provisional remedy” if the debtor is fraudulently disposing of assets during the suit—creditor may have right to immediate attachment. Rare. Subject to Const’l guarantee of due process. Also expensive.
· Until sheriff arrives, the debtor can continue to conduct business—w/o violating any law, the debtor may lose the assets in business operations, exchange them for other assets of reasonable equivalent value, or apply them to the payment of other bona fide debts
· Exemptions statutes: prevent sheriff from seizing certain property (usually listed in the statute) under a writ of execution
Homestead Exemptions: houses and surrounding real estate are protected— some states have unlimited dollar amount and some limit the dollar amount
D. Is the Law Serious About Collecting Unsecured Debts?
· The law authorizes courts to imprison debtors for certain obligations: alimony or child support, respecting other’s property by not trespassing or stealing, and the obligation to perform under a contract to sell real property
· Techniques for getting unsecured debt paid
Body attachment: Put you in jail until you pay
Liens: Property interest given to creditor in debtor’s property
E. Lessons From the Problems
There are various avenues for redress w/ small claims (the lawn furniture problem)
Go to small claims court
Could negotiate, see if they could talk
Has to be carefulàcan’t call her at 3 a.m. or go to her work.
She could call the sheriff to get him to stop harassing her
Get lawyer to write a letter (works about 50% of the time)
Could make a sign and picket in front of her house (that is const’ly protected right)
There are lots of practical things he can do, but he has to be careful
Careful about collecting debt by trickery
Until there is a payment missed or other breach of the agreement, there is no default
If there is an exemption, when the creditor sells the property, they MUST give back the amt of the exemption that is created by statute.
Assignment 2: Security and Foreclosure
A. The Nature of Security
Lien: a charge against or an
ent of foreclosure
· Court sets a date for the foreclosure sale
· Depending on the local statute, the sale must be advertised to some degree
o Usually with a newspaper of general jurisdiction
o Advertising cannot begin until final judgment of foreclosure
· On the date of the sale the sheriff or clerk conducts the auction on a particular date or at a particular location
· In most jurisdictions, the sale must be confirmed by the court—the debtor can object to the manner in which the property was sold
· After confirmation the sale proceeds are disbursed
o Debtor gets surplus—rarely happens
o Creditor can get deficiency judgment
· If the debtor refuses to give possession, purchaser can get writ of possession/assistance (directs sheriff to remove the debtor from the premises and put the purchaser in possession).
· Deed in Lieu of Foreclosure: after the debtor defaults the debtor can just transfer the property to the creditor (provided there are not any other liens/interests in the property).
2. Power of Sale Foreclosure
· Power of sale: May be included in the security agreement—creditor records in public records the default and debtor has a certain amount of time to pay—if they don’t pay, the creditor has the right to sell the property (mortgage/deed of trust)
· The primary purpose is to avoid the expense and delay of litigation
· Under “power of sale” clause in the security agreement that forgoes the judicial procedure – give debtor 90 days to clear the default
3. UCC Foreclosure by Sale—Article 9
· 9-610(a): after default, the secured party may sell, lease, license, or otherwise dispose of any or all of the collateral – selling the property
o (b) Every disposition of the property may be made in any manner that is in a commercially reasonable manner
o (c) secured party may purchase collateral at a
§ Public disposition or