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

My Secured Transactions Outline

Definitions

Lien – An interest in property that gives the holder of the lien a right to possession of some of the debtor’s property in the event that the debtor failst o perform its obligations.

Note: Lines are always in specific property
Default – failure to pay on the loan
Judicial Lien – a lien that arises from judicial proceedings (a.k.a. involuntary lien). A judgment is not an order to pay; it is simply recognition of the debt by the legal system. Plaintiff then must enforce the judgment through a writ of execution and a levy of the property.

A judicial creditor could also emerge from tort cases where a judgment is entered against the defendant.
Methods of Collection

Execution – sell tangible property
Garnishment – property is held by others (employers) and the creditor goes after that property
Judgment- usually real property only

Statutory and Common Law Liens – such as mechanic’s liens or tax liens. Arise from statute or law – favor certain parties by statute.
Consensual Liens – mortgages and security interests. Agreement by the owner (debtor) to grant a lien. Covered by a security interest or mortgage agreement.

Creditor contracts w/ debtor to engage in the lien
Personal property = Security Interest (SI)
Real Property = Mortgage
See pg 597 for more

Unsecured Creditor – a.k.a. general creditor. An obligation is owed to this party but there is no lien on any particular property. UCC §9-201(a)(13)

Note that a judgment creditor is not a secured creditor until they have executed the writ and levied on the property (depending on the state requirements)

Security Interest – an interest in personal property that a secured party takes to secure repayment of the debt. See UCC §9-201(a)(35); 1-201(35)

Article 9 covers security agreements. Can include assets, accounts, chattel paper, notes, etc. Property must be identifiable.

Security Agreement – K between debtor and SC that grants or gives the security agreement. See UCC §9-102(a)(73)
Secured Party – the lender or creditor who has an SI with the debtor. UCC §9-102(a)(72)
Collateral – specific assets in which the SC holds an SI. Described in a security agreement. UCC §9-102(a)(12).
Debtors – a.k.a. obligors. Person with ownership interest in collateral that is also has an SI from a SC.
Writ of Execution – an order form the court to the sheriff to seize enough property to cover the creditor’s judgment. Sheriff levies the goods and sells them at auction.
Levy – sheriff takes possession of property that will be used to pay off a judgment creditor.

I. Intro Material

Collection of Unsecured Debts

Obtaining a Judgment – An Unsecured Creditor (UC) may be come secured by obtaining a judgment

Upon obtaining the judgment, the UC must (a) obtain a writ of execution and (b) levy on the goods (personal property only)

With regard to real property, the JC merely must record his or her judgment in the county recorder of deeds office where the property is located and a lien will be placed on the property that must be satisfied prior to sale of the property.

The judgment creditor (JC) must inform the sheriff of what property to levy and where it is located.

Personal property – sheriff will take possession
Large equipment – sheriff will tag with notice of levy
Goods in a warehouse – sheriff may lock the warehouse and place notice of levy
Priority of Judgment Creditors

Majority rule – actual execution of the writ (whoever’s writ is executed first to levy property has priority)
Minority rule – whoever files the writ first (levy can come later and relates back)

Enforcing the debt

Discovering debtor’s assets – JC may examine the debtor/defendant under oath after the judgment is entered to determine what property Debtor owns

This is also known as supplemental proceedings.

on the property and force a judicial sale.

The debtor can redeem the debt by paying the creditor back prior to sale: but not after the sale.

Consensual Lien

Judicial Lien

Personal Property

Art. 9-610 Sale
Creditor sells the property
Usually sold privately

Execution sale
Sheriff sells property at public auction

Real Property

Mortgage Foreclosure
Public auction for the property – the court must confirm this

Judgment lien / Judicial sale
Sheriff or court sells and the court places restrictions on the sale.

III. Article 9: Scope and Collateral

Two separate categories of collateral types:

Tangible property and goods

Consumer goods, equipment, inventory, farm products, fixtures, etc.

Intangibles

Accounts receivable, chattel paper, gen’l intangibles, instruments, deposit accounts, commercial tort claims, investment accounts etc.

Scope of Article 9

Covers SI’s in personal property. UCC §9-109(a), UCC §1-201(35). Essentially the SC’s interest in a piece of property in exchange for a loan is secured through the SI (obligation).

This gives the SC the right to possession of the collateral