Secured Transaction: Review Outline
I. Creditor’s Remedies
a. Different Types of Liens (commit this information to memory)
i. Judicial Liens
a) Execution – usually tangible property only
b) Garnishment – property held by 3rd or intangible property
c) Judgment – Usually real property only
ii. Statutory Lien: varies from state to state, but almost always tax lien
1. Tax Lien
2. Mechanic’s Lien — (aka – construction lien) (see list on pgs. 587-603)
iii. Consensual Lien – established through debtor’s consent; contractual
1. Security Interest – personal property; the document conveying this interest is called a security agreement (a K).
2. Mortgage – real property
b. Unsecured Creditor: If a D defaults, an unsecured creditor must attempt to gain a judicial lien and cannot repossess D’s property – if unsecured creditor attempts to do so he/she could be liable for conversion and criminal larceny.
i. Consumer Protection Statutes: exist in all 50 states and typically provide exemptions for motor vehicle, homestead, household, consumer, business and farm property, depository accounts, and net income, among others.
1. Exemptions only apply to individuals.
2. If property is over the exemption amount, D will still get up to the value of the exemption (i.e. if exemption for car is $1,200 and it is worth, $6,000, D will get paid first $1,200 of the sale of that car).
ii. Determining D’s Assets
1. Summary Proceedings: opportunity under which the creditor’s lawyer can depose the D under oath to determine his assets
iii. Judicial Foreclosure Sale Procedure
1. For judicial foreclosure, statutes usually specify that sheriff or other public official govern sale.
2. Official first disburses the sale proceeds to reimburse the foreclosing creditor for the expenses of the sale. Next, the proceeds are distributed to the foreclosing creditor up to the amount of the debt secured by the foreclosed lien. If there are not any remaining liens, the remaining surplus goes to the debtor.
a. If the proceeds are insufficient to pay the full amount of the debt the creditor can attempt to gain a deficiency judgment
3. The debtor has the right to redeem the property during the foreclosure process by paying the full amount due under the mortgage, including interest and attorney fees
iv. Problems with Foreclosure Sale Procedure
1. Creditor can have a foreclosure sale set aside if the sale
a. The disparity between the sale and the market value is so great as to “shock the conscience of the court”
b. There are circumstances in addition the s
default, the D can consent to the secured party retaining the collateral in full or in partial satisfaction of the debt. For full satisfaction, consent can occur if the secured creditor does not receive notification w/I 20 days of the D’s objection. Consent is subject to 3 conditions
a. There must be no objection from others holding liens against the collateral 9-620(a)(2)
2. If the collateral is consumer goods, the debtor can consent to strict foreclosure only after repossession 9-620(a)
3. Strict foreclosure is not permitted if the D has paid 60% of the loan against other consumer goods 9-620(a)(4) & (e). This provision is aimed at protecting D’s against loss of equities in goods.
iii. Sale Procedure Under Art. IX
1. The secured creditor, not the court, conducts the sale and distributes the sale proceed. 9-610(b)
2. The foreclosing creditor has a duty to the D to choose a procedure for sale that is commercially reasonable. 9-610(b).
3. Foreclosing creditor must provide D w/notification prior to foreclosure sale.