Secured Transactions Outline

 
Lee_Secured Transactions_Fall_2015
 
 
I.                Creditor’s Remedies
a.    Unsecured Creditors
                                                              i.      Unless a creditor contracts with the debtor for secured status or is granted it by statute, the creditor is Unsecured
                                                            ii.      To Compel Payment:
1.       File a complaint with an appropriate court, and serve process on the debtor-defendant.
a.       If the complaint is in small claims court, you may have a hearing in which the court will resolve the entire case by entering a final judgment. If not, the case procedure goes through civil procedure. You can file motions and so on
2.       Self-help – usually unavailable and could be conversion
                                                          iii.      Vitale – Issues of collection. Sheriff didn’t want to collect under a writ of execution. “A successful plaintiff who obtains a judgment against a defendant may cause the personal property of the defendant/judgment debtor to be seized and sold and the proceeds applied to the judgment and costs by way of execution” “If a sheriff fails to perform any duty imposed upon him by law in respect to writs of execution resulting in loss or damage to the judgment creditor, he shall be subject to amercement in the amount of such loss and damage to and for the use of the judgment creditor”
                                                           iv.      Ellerbee – Plaintiff wants execution of his writ to be expedited. For Imposition of governmental liability: 1) requires that the enactment at issue be obligatory, rather than merely discretionary or permissive; 2) Requires that the mandatory duty be designed to protect against the particular kind of injury the plaintiff suffered.
b.   Repossession
                                                              i.      Right to Possession [9-609]   
1.       SC has right to take possession immediately on default [9-609(a)] 2.       May take possession by: [9-609(b)] a.       Pursuant to judicial process, OR
b.      Without judicial process, if no Breach of the Peace (self-help)
3.       SC can complete foreclosure by selling in commercially reasonable manner [9-610]                                                             ii.      Limits on Self-Help: Breach of the Peace
1.       2 Primary Factors
a.       Potential for immediate violence
                                                                                                                                      i.      Notice is not required but makes more reasonable
                                                                                                                                    ii.      Trespass is not necessary but increases chance for violence
                                                                                                                                  iii.      Confrontation or violence is not necessary to find breach, but a possibility of immediate violence is sufficient
b.      Nature of the premise intruded upon
                                                                                                                                      i.      More likely breach when invasion of private property
                                                                                                                                    ii.      Home is different from business
2.       Salisbury Livestock – SC took car from outdoor area adjacent to ranch house just after dawn; ranch belonged to D father; Court held it could have been breach of peace and had to go to the jury
3.       Chapa – SC repossessed wrong car from D’s brother’s house with kids inside, brought car back really soon; court held no breach of peace for parents claims b/c repo man actively avoided confrontation and no case support where repo of car from public street, without objection or confrontation, constituted breach of peace
c.    Foreclosure:
                                                              i.      The process by which the creditor compels action.
                                                            ii.      Comes in three Flavors:
1.       Judicial Foreclosure
2.       Strict Foreclosure
3.       Article 9 foreclosure
d.   Judicial Foreclosure
                                                              i.      Sheriff Conducts sale, sells to third party
1.        Sheriff is paid, SC gets cash up to loan amount; any leftovers go to D. In that order.
                                                            ii.      When will the sale be no good? (Armstrong)
1.       Sale price disparity so great that it “shocks the conscience”
2.       Other circumstances, in addition to inadequate price, which would make it inequitable to allow the sale to stand
3.       “While mere inadequacy of price has rarely been held sufficient in itself to justify setting aside a judicial sale of property, courts are not slow to seize upon other circumstances impeaching the fairness of the transaction, as a case for vacating it.” – Armstrong
                                                          iii.      Deficiency Judgment
1.       If sale doesn’t cover debt, SC can get a deficiency judgment in form of unsecured debt
                                                           iv.      Anti-Deficiency Statues
1.       Some jurisdictions, creditor gets credit for Fair Market Value of collateral. In that case, the deficiency judgment will be the difference between the “fair market value” and what the collateral actually sold for. Nothing to do with how much the debt was for (unless, of course, the fair market value would be more than the debt owed).
2.       Some jurisdictions forbid deficiency judgments all together
                                                             v.      Armstrong – SC bought collateral at judicial sale for $90K and got a deficiency judgment of $125k; no one knew the actual value of property at sale and D couldn’t prove Fair Market Value; court said it wasn’t enough to shock the conscience
                                                           vi.      Credit Bidding – Takes place when the creditor/lender is bidding on the property. When this happens, no money changes hands. Instead, the debt is just reduced by whatever his bid was.
                                                         vii.      *** A number of aspects of foreclosure sale procedure contribute to its frequent failure to bring reasonable prices for the property that is sold:
1.       The sales are poorly advertised
2.       Prospective buyers are given little opportunity to inspect the property before the bidding, but they must accept the property “as is”
3.       The rule of caveat emptor applies with regard to the state of the title.
4.       The sale often takes place in a hostile environment, making it difficult for the prospective bidder to get information about the property.
5.       The buyer may be unable to use the property until the statutory redemption period expires.
 
e.    Strict Foreclosure
                                                              i.      Strict Foreclosure is foreclosure that does not result in a sale.
                                                            ii.      SC becomes the owner of the collateral in lieu of payment
                                                          iii.      Can be:
1.       Full Strict Foreclosure – Creditor takes the collateral and wipes the debt. Or
2.       Partial Strict Foreclosure – Creditor gets the collateral and takes away a certain portion of the debt
                                                           iv.      Governed by UCC § 9-620: Acceptance of collateral in Full or Partial satisfactions of obligation; Compulsory Disposition of collateral
(a) Except as otherwise provided in subsection (g), a secured party may accept collateral in full or partial satisfaction of the obligation it secured only if:
(1) the debtor consents to the acceptance under subsection (c);
(2) the secured party does not receive, within the time set forth in subsection (d), a notification of objection to the proposal
(3) if the collateral is consumer goods, the collateral is not in the possession of the debtor when the debtor consents to the acceptance; and
(4) subsection (e) does not require the secured party to dispose of the collateral or the debtor waives the requirement pursuant to section 9-624
                                                                So for number (1) Consent:
(c) For purposes of this section:
(1) a debtor consents to an acceptance of collateral in partial satisfaction of the obligation it secures only if the debtor agrees to the terms of the acceptance in a record authenticated after default; and
(2) a debtor consents to an acceptance of collateral in full satisfaction of the obligation it secures only if the debtor agrees to the terms of the acceptance in a record authenticated after default or the secured party:
a.       sends to the debtor after default a proposal that is unconditional or subject only o a condition that collateral not in the possession of the secured party be preserved or maintained;
b.      in the proposal, proposes to accept collateral in full satisfaction of the obligation it secures; and
c.       does not receive a notification of objection authenticated by the debtor within 20 days after the proposal is sent. (** Note that an ORAL objection is insufficient)
And for (4)
(e) A secured party that has taken possession of collateral shall dispose of the collateral if
2.       (2) 60 percent of the principal amount of the obligation has been paid in the case of consumer goods.
And finally:
(g) In a consumer transaction, a secured party may not accept collateral in partial satisfaction of the obligatio