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

Secured Transactions Outline
Spring 2004 – Professor Ware
 
 
I.                     Definitions
a.        Attachment – Legal process of seizing another’s property in accordance w/ a writ or judicial order for the purpose of securing satisfaction of a judgment.
b.        Chattel Paper – writing or writings which evidence both a monetary obligation and a SI or lease in a specific good. §102(a)(12)
c.        Creditor – anyone owed a legal obligation that could be reduced to a $ judgment
d.        Clouded title – title to possible encumbered property
e.        Default – debtor fails to comply with a provision of a sec agreement
                                                                i.      usually failure to make a payment
f.         Encumbrance – right, other than ownership interest, in real property. Includes mortgages and other liens on real property. §102(a)(32)
g.        Foreclosure – process of applying value of collateral to the payment of a debt
                                                                i.      foreclosure of personal property is much easier than real property
                                                               ii.      A9 governs foreclosure on personal property
h.        Instrument – a negotiable instrument or any other writing that evidences a right to the payment of a monetary obligation, is not itself a sec agreement or lease, and is of a type that in ordinary course of business is transferred by delivery with any necessary endorsement or assignment. §102(a)(47)
                                                                i.      Does not include (i) investment property or (ii) letters of credit
i.          Levy – seize property or cash
j.          Lien – “a charge against or an interest in property to secure payment of a debt or performance of an obligation.” BC §101
                                                                i.      Consensual lien – SI
                                                               ii.      Nonconsensual liens – statutory liens
1.        Mechanic’s lien
2.        Judicial liens
k.        Money – medium of exchange currently authorized or adopted by a domestic or foreign G. §1-201(24)
l.          Priority – right to have collateral’s value applied to your debt when collateral’s value is insufficient to repay all creditors
m.      Purchase – taking by sale, lease, discount, negotiation, mortgage, pledge, lien, SI, issue or reissue, gift, or any other voluntary transaction creating an interest in property. §1-201(29)
                                                                i.      Purchaser – person that takes by purchase
n.        Secured – collateral is specified by a lien
                                                                i.      If debtor defaults, the collateral is forfeited
                                                               ii.      Security holder has power over debtor
o.        Security Interest (“SI”) – any lien created by K between debtor and creditor
                                                                i.      Doesn’t include statutory liens
                                                               ii.      Includes RE mortgages, deeds of trust, SIs in personal property created under A9
p.        Secured Party – person whose favor a SI is created or provided for under sec agreement. §102(72)(A)
                                                                i.      Includes: (B) person holding an agricultural lien, (C) consignor, (D) person to which accounts, chattel paper, payment intangibles, or promissory notes have been sold, (E) trustee in whose favor a SI is created.
q.        Security Agreement – an agreement that creates or provides for a SI.
                                                                i.      Effective according to its terms b/w the parties, against purchasers of the collateral, and against creditors. §201(a)
r.         Signed – using any symbol executed or adopted with present intention to adopt or accept a writing.
s.        Unsecured – creditor has no lien against collateral
                                                                i.      Done by either by negotiation with debtor or by statute
                                                               ii.      Other terms for unsecured creditors 
1.        General creditors
2.        Ordinary creditors
3.        Judgment creditors
t.         Writs
                                                                i.      Writ of assistance/possession – ct order directing sheriff to remove a debtor from premises and give possession to foreclosure purchaser
                                                               ii.      Writ of execution – a court order for a sheriff to levy against a debtor
                                                              iii.      Writ of garnishment – a court order for a sheriff to levy against a debtor’s property held by a third party
                                                             iv.      Writ of replevin – directs sheriff to deliver possession to party who obtained the writ
                                                              v.      Writ of attachment – an order to seize the debtor’s property so as to secure the claim of a creditor. Black’s Law
II.                    Creditors’ Remedies under State Law. IF NO BANKRUPTCY IS DECLARED
a.        Unsecured Creditors
                                                               i.      Who is an unsecured creditor?
1.        Creditor – anyone owed a legal obligation that could be reduced to a $ judgment
2.        Unsecured creditor – creditor has no lien against collateral owned by debtor
a.        Either by negotiation w/ debtor or by statute
3.        Exs: 
a.        loan recipient = debtor; bank = creditor
b.       tortfeasor = debtor; wronged party = creditor (e.g., car crash)
c.        child support payer = debtor; kid = creditor
4.        All remedies available to unsec’d creditors are also available to sec’d creditors, but not vice-versa
                                                              ii.      How Unsecured Creditors Can Get (compel) Payment
1.        Offsetting – If creditor owes debtor anything, he can offset the debts
a.        Ex: A owes B $10,000. B owes A a car worth $7,000. B can keep car, offset its value against the $10,000 and now A owes B $3,000.
2.        Use the Sheriff – Judgment creditors can have sheriff make seizures/sales of debtor’s property
a.        Creditor must be specific about what is to be seized, where it is, etc.
                                                                                                                                       i.      If it is vague, the sheriff may not know what to take
b.       What sheriff needs to do this
                                                                                                                                       i.      Writ of execution – sheriff levies (takes) directly against debtor
                                                                                                                                      ii.      Writ of garnishment – sheriff levies debtor’s property/cash held by a 3P
                                                                                                                                    iii.      Note: sheriffs must comply reasonably w/ writ
c.        Amercement – At CL, if sheriff does not properly execute levy against judgment debtor, creditor can get indemnified by the sheriff. Vitale v. Hotel California
                                                                                                                                       i.      Thus, sheriff must pay creditor directly, then sheriff can go after debtor.
3.        Attachment – Legal process of seizing another’s property in accordance w/ a writ or judicial order for the purpose of securing satisfaction of a judgment.Black’s Law.
a.        During a lawsuit, or after judgment, writ of attachment may be available
b.       Especially if danger of fraudulent transfers
4.        Note: judgment creditors have the right to use discovery to obtain info about a debtor’s assets
                                                            iii.      Limits on Getting Payment
1.        Limit 1: No self-help for unsecured creditors. Prohibited seizures can bring 3 kinds of liability
a.        Tort liability – conversion
b.       Larceny – theft
c.        “Wrongful collection practices” – recovery must be in a “reasonable” manner according to state’s law
2.        Limit 2: Debtor in different states – $ judgments are only enforced in state where rendered
a.        Ex: KS court can’t give orders to NE sheriff
b.       If debtor moves to another state, creditor has to start over in that state
3.        Limit 3: Preference. Debtor can choose which unsec creditor to pay 1st, 2nd, etc., leaving nothing for the others
4.        Limit 4: Exemptions. All 50 states have statutes protecting certain property from seizure
a.        Ex: clothing, vehicles worth less than x$, homesteads, etc.
b.       SI or Lease?
                                                                i.      Security Interest (“SI”) – any lien created by K between debtor and creditor. §1-201(35)
1.        Doesn’t include statutory liens
2.        Includes RE mortgages, deeds of trust, SIs in personal property created under A9
                                                               ii.      Transaction creates a SI if [§1-203(b)] 1.        Consideration lessee is to pay lessor is obligation;
2.        Obligation not subject to termination by lessee; AND
3.        One of the following exists:
a.        (1) The original lease term is eauql to or greater than remaining ec life of goods,
               

roperty, not RE
                                                                                                                                      ii.      Procedure:
1.        Default
2.        Creditor chooses sale or other judicial procedure. §601(a)(1)
3.        Sec party may sell, lease, license, or dispose of any/all of collateral. §610(a)
a.        Process must be commercially reasonable. §610(a)
4.        Debtor may not redeem property after sale/disposition. §623(c)(2)
5.        The sale (1) transfers all of debtor’s rights in collateral to purchaser, (2) eliminates relevant SI, and (3) eliminates any subordinate SI liens. §617(a)
a.       Note: Statutes can create liens that cannot be eliminated
d.       Repossession of Collateral
                                                               i.      Why Possession is Important During Foreclosure Procedure
1.        Foreclosure may last several yrs, possession allows use during that time
2.        Debtor may not maintain property or destroy it
3.        DIP may make it difficult/impossible for prospective purchasers to evaluate property
                                                              ii.      Right to Possession Pending Foreclosure: RE
1.        Debtor’s Rights
a.        General Rule – debtor is owner and possessor until foreclosure sale
                                                                                                                                       i.      After sale, only purchaser may dispossess debtor
                                                                                                                                      ii.      Purchaser may still have to file for eviction, writ of possession, etc.
b.       Debtor usually has 10 – 20 days of possession after sale
2.        Receiver’s Rights
a.        Receiver – officer of ct w/ obligation to preserve collateral’s value
                                                                                                                                       i.      Fiduciary duty to all interested parties
                                                                                                                                      ii.      Takes possession during foreclosure proceedings and delivers possession to purchaser
                                                                                                                                    iii.      Any interested party can apply to be a receiver pending foreclosure
b.       Receiver can
                                                                                                                                       i.      allocate property usage,
                                                                                                                                      ii.      collect any income generated, and
                                                                                                                                    iii.      use that income to maintain property
c.        Cts rarely appoint receivers, unless mortgage provides for appointment
                                                                                                                                       i.      Always an equitable remedy at ct’s discretion
                                                                                                                                      ii.      Creditor must demonstrate foreclosure alone would be inadequate
1.        Even if receiver clause is in agreement
2.        Usually must show property value less than debt and debtor (mortgagor) insolvent
                                                                                                                                    iii.      Appointments rarely involve residential RE occupied by debtor
3.        Assignment of Rents, Issues and Profits Rights