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Secured Transactions
University of Kansas School of Law
Ware, Stephen J.

I. Introduction
A. § 1-201(37): A security interest is an interest in personal property which secures payment or performance of an obligation
1. Encompasses the Following:
a. Judicial Lien: Created in litigation process in which the CR seeks a money judgment on the debt
i. Judgment lien: normally on real estate
ii. Execution: tangible property
iii. Garnishment: going after debtor’s cash, from bank account or employment wages
b. Statutory Lien: not consensual and does not depend on judicial action by CR, granted by statute
i. Tax Lien
ii. Mechanics Lien
c. Consensual Lien: Arise at the inception of a credit transaction
i. § 9-109(a)(1): Article 9 applies to a transaction, regardless of its form, that creates a SI in personal property by contract
ii. Only created by K—Mortgage for real property; Security Interest for personal property
B. Overview of Unsecured Creditors
1. Cannot do self help, but must seek a judicial lien
2. Subject to exemptions
3. Slowest way to collect money
C. Overview of Foreclosure

Consensual Lien
(Secured Creditors)
Lien created prior to breach.
The lien is created via contract

Judicial Lien
(Unsecured Creditor)
Lien is created via Judgment


Creditor Sells
Usually Sold privately

Execution Sale
Sheriff sells
Public Auction


Mortgage Foreclosure
Public Auction
Court confirmation

J’ment lien / Judicial Sale
Sheriff or court sells
Court restrictions

1. Judicial Foreclosure: (state statute specifies how to accomplish)
a. Creditor files a civil action against the debtor
b. The Ct will enter final judgment of foreclosure
c. Notice of Sale
d. Sale
e. Court must confirm sale
f. Debtor keeps property until the sale has been confirmed
2. UCC Foreclosure by Sale
a. 9-610(a)- provides that after default, the secured party may sell, lease, license, or otherwise dispose of any or all of the collateral
b. 9-623- that sale or disposition itself forecloses the debtor’s right to redeem the property
c. 9-617(a)- foreclosure extinguishes the creditor’s security interest in the collateral and transfers to the purchaser all of the debtor’s interest in the collateral
d. 9-601(a)- alternatively, if the creditor so chooses, he/she may foreclose by an available judicial procedure
3. Foreclosure Sale must be Commercially Reasonable
a. § 9-627(b)
i. In the usual manner on any recognized market
ii. At the price current in any recognized market at the time of the disposition; or
iii. Otherwise in conformity with reasonable commercial practices among dealers in the type of property that was the subject of the disposition
b. Problems with foreclosure sale:
i. Price may shock the conscience of the court
ii. Little advertising in comparison to a broker
iii. Potential buyers do not have a right to inspection
iv. Buyers take subject to any defects in the title
v. Hostile situation so potential buyer may not have much information
vi. The Statutory Right to Redeem
4. Review:
a. Unsecured creditor must sue and win a judgment
b. Mortgagee you have to sue and file foreclosure action, then you have to wait for the money
c. Secured Creditor – Replevin – have to go to court for a replevin action and is shorter than a full court procedure. Give writ of replevin to sheriff and he will re

kruptcy in General:
a. File for bankruptcy
b. Upon receiving the forms, the bankruptcy clerk stamps the front page with the date and time and at that instant, two things happen: a bankruptcy estate (all property of the debtor) is automatically created AND a stay against any collection activities is automatically imposed
c. Payments and collections are to be handled according to the procedures imposed by bankruptcy law
d. Certain property will be exempted (determined by state law). In some states debtors may choose to exempt property under the state law or under bankruptcy law, and sometime bankruptcy law exempts more than the state. Corporations are not entitled to any exemptions.
e. When will the Creditor see the money:
i. With liquidation immediately
ii. With reorganization not for many years but you will receive the present value of what you would have received in liquidation.
1. A series of payments the present value of which is ……(important on the test)
E. Options for the Secured Creditor
1. Motion to have the stay lifted – 9-362(d)((1) & (2)
a. This is a common approach for creditor to motion the court to lift the stay
b. This will allow you to repossess and foreclose
2. If the stay is nto lifted, then the creditor is stuck with the bankruptcy court
a. If you have to play in the bankruptcy court
i. File a Proof of Claim in the bankruptcy court
1. Process of how claims are handled (ch. 5 of bankruptcy code)
a. Section 502: allowance of claims or interest
i. A claim is deeded allowed, unless a party in interest objects