I. Remedies of Unsecured Creditors Under State Law
a. Who is an Unsecured Creditor? (General Creditors)
i. An unsecured creditor is someone who is in a creditor/debtor relationship; and.
ii. Who has not contracted with the debtor for secured status or is not granted secured status by statute
b. How Do Unsecured Creditors Compel Payment?
i. Successive Levies Under One Writ – except exemptions
1. Successive levies can be made under one writ
2. The rule is that further levies under one writ are authorized under the same writ before the return day if the initial levy does not satisfy the judgment
ii. Reasonableness of Requested Levies
1. General Rule: “An officer may force an entry into any enclosure except the dwelling house of the judgment debtor in order to levy a fieri facias on the debtor’s goods and even in the case of the debtor’s home, when the officer is once inside, he may break open inner doors or trunks to come at the goods…” (p. 10)
1. Traditionally “amercement” has been used to describe a fine imposed on officers of the court for failing to turn over money or, more particularly, for a sheriff’s neglect to levy upon or turn over proceeds of an execution…
a. Since a public officer such as a sheriff is presumed to have acted properly, plaintiff must clearly establish some default of duty…
2. By proceeding in amercement, a judgment creditor may hold a sheriff liable for failing to properly execute against a judgment debtor.
3. If the sheriff is found to have failed to perform the duty imposed upon him by the law in regards to writs of execution, he shall be subject to amercement in the amount of such loss and damage to and for the use of the judgment creditor.
4. Amercement may be made by the court having jurisdiction of the judgment and the proceedings for the enforcement thereof in an action or proceeding for amercement or in the nature of an amercement brought for the purpose.
5. The delinquent sheriff or acting sheriff shall also be subject to attachment or punishment for contempt.
c. Limitations on Compelling Payment
i. Exemption statutes
ii. Sheriff will only act on clear instructions where and when to get it
iii. If the property seized turns out to be owned by a third party the creditor may be liable to the third party for conversion damages.
iv. Have to be able to find the money (man with pocket full of cash).
v. Not allowed self-help
d. Is the Law Serious About Collecting Unsecured Debts?
II. Security and Foreclosure
a. Lien – a relationship between particular property or a particular debt or obligation. (more effective set of collection rights) A charge against or an interest in property to secure payment of a debt or performance of an obligation.
i. Security Interest: The most common form of a lien.
1. Any lien created by contract between debtor and creditor.
a. Real estate mortgages
b. Deeds of trust
c. Security interests in personal property created Art. 9 of the UCC.
2. Intended as Security –
a. This doctrine applies to personal property transactions as well as those involving real property.
b. UCC §9-109(a)(1) provides that Art. 9 applies to any transaction, regardless of its form, that creates a security interest in personal property”
ii. Nonconsensual Liens:
1. Statutory Liens: liens granted by statutes. Ie. Mechanics liens
2. Judicial Liens: liens obtained by unsecured creditors through judicial process
3. A charge against or an interest in property to secure payment of a debt or performance of an obligation.
b. Foreclosure – if a particular debt is not paid when due, the creditor can compel the application of the value of the collateral to payment of the debt.
1. How much value the creditor can extract from it after default
2. How much leverage the creditor can derive from the creditor’s ability to deprive the debtor of the property (how much will the debtor be willing and able to pay to keep it?)
ii. Redemption of Property
1. The right cannot be waived or abandoned by any stipulation of
1. Art. 9 of the UCC governs the foreclosure of security interests in personal property.
2. It provides that after default, the secured party may sell, lease, license, or otherwise dispose of any or all of the collateral. UCC §9-610(a).
3. The sale or disposition itself forecloses the debtors’ right to redeem the property. UCC §9-623.
4. It extinguishes the debtor’s security interest in the collateral and transfers to the purchaser all the debtor’s rights in the collateral. UCC §9-617(a).
5. Alternatively, if the creditor so chooses, it may foreclose by any available judicial procedure. UCC §9-601(a).
III. Repossession of Collateral
a. The importance of Possession Pending Foreclosure
i. Secured Creditor
1. First, a debtor whose rights in the property are about to be extinguished through foreclosure may have little incentive to preserve and maintain the property. (A quicker recovery will tend to preserve its value.)
2. Second, the use of the collateral between the time the right to foreclose accrues and the time it becomes final may have substantial economic value. (Debtor living in house without making mortgage payments.)
3. Third, if the debtor is in possession of the property during the period leading up to the sale, it may be difficult or impossible for prospective purchasers to evaluate the property; thereby depressing the resale price.
1. Being ousted from their home – The debtor can threaten to retain possession of the collateral for a long time, to run up the cost of repossession.
2. May not have had their day in court
3. Foreclosure is a legal safeguard used in part to protect debtors from wrongful repossession.
b. The Right to Possession Pending Foreclosure – Real Property
i. The Debtor’s Right to Possession During Foreclosure