Select Page

Secured Transactions
University of North Carolina School of Law
Brown, Carol N.

Secured Transactions Outline Fall 2007

1 – Introduction…………………………………………………………………………………………………………….. 1
2 – Unsecured Creditor Remedies under State Law………………………………………………………… 2
3 – Secured Creditor Remedies………………………………………………………………………………………. 3
A. Self Help Repo……………………………………………………………………………………………………… 5
B. Judicial Foreclosure Sale (RE)……………………………………………………………………………….. 7
C. Art. 9 Disposition Remedies…………………………………………………………………………………. 10
4 – Bankruptcy Claims…………………………………………………………………………………………………. 12
4) Automatic Stay §362………………………………………………………………………………………….. 12
5 – Default, the Gateway to Remedies…………………………………………………………………………… 14
3) Acceleration………………………………………………………………………………………………………. 14
6 – Default under Bankruptcy Law………………………………………………………………………………. 16
7 – Attachment of Security Interest………………………………………………………………………………. 17
5) Scope of collateral attached in SA………………………………………………………………………. 18
c) After-acquired property (AAP) 9-204(a)………………………………………………………… 18
8 – Proceeds (transformation of collateral)……………………………………………………………………. 19
d) GEN. ANALYSIS FOR FINDING COLLATERAL ATTACHED AS SI………….. 19
9 – Intro to Perfection………………………………………………………………………………………………….. 21
10 – Filing System………………………………………………………………………………………………………… 22
A. Financing Statement requirements…………………………………………………………………………… 24
B. Filing Office Errors………………………………………………………………………………………………… 25
C. Debtors Name Errors………………………………………………………………………………………………. 26
11 – Other methods of Perfection………………………………………………………………………………….. 27
4) Possession…………………………………………………………………………………………………………. 28
5) Control……………………………………………………………………………………………………………… 28
6) Automatic perfection…………………………………………………………………………………………. 29
7) SI not governed by Art. 9 perfected in other ways………………………………………………. 29
12 – Real Estate Perfection…………………………………………………………………………………………… 30
13 – Changes that Affect Perfection……………………………………………………………………………… 31
5) Debtor’s Name Change……………………………………………………………………………………… 31
A. Changes in ID & Use…………………………………………………………………………………………… 32
4) Insurance………………………………………………………………………………………………………….. 33
B. Relocation of Debtor or Collateral……………………………………………………………………….. 34
14 – Competitions for Collateral…………………………………………………………………………………… 35
ii) LC v. LC………………………………………………………………………………………………………….. 35
A. LC v. SC…………………………………………………………………………………………………………….. 36
B. Bankruptcy trustee v. SC…………………………………………………………………………………….. 38
C. SC v. SC…………………………………………………………………………………………………………….. 42
D. Buyer v. SC………………………………………………………………………………………………………… 44
15 – Art. 9 & Securitization………………………………………………………………………………………….. 47

Blank

1 – Introduction

1) Creditor = anyone owed a legal obligation that can be reduced to a money judgment
a) Voluntary (loan) or involuntary (tort) or § (workers comp)
b) Unsecured creditor (unSC): obligation to pay is not secured in K by interest in specific property
i) Ex = lender gives loan, borrower promises to pay.
ii) Why be unSC (policy):
(1) higher return
(2) don’t know of status (tort victim)
(3) lack of bargaining power (empt) or sophistication
(4) business custom
c) Secured creditor (SC): obligation to pay debt is secured by interest in specific property
i) Ex = Lender gives loan, borrower promises to pay + gives interest in collateral
ii) Communicate priority by: public records; rules of priority; bankruptcy lien avoidance
iii) Why secured better:
(1) Have more remedies
(a) Judicial foreclosure (*only option for unSC)
(b) Remedies agreed to by K
(c) Self help repo
(d) Art. 9 disposition
(2) Priority over unSC and later-in-time SC
(3) § exemptions don’t apply
d) Judgment creditor (JC): court judgment grants creditor status
2) Debtor
a) Obligor is person who promises to pay the money 9-102(a)(59)
b) Debtor is the one who has the right to give SI in property; seller of accounts, chatte

perty or interest in property that secures obligation
i) SI in secured lending arrangement are most common liens: mortgage; deeds of trust, art 9
ii) SI = right to property contingent on nonpayment of a debt/default
(1) Lender gets loan amount + interest + costs
(2) Only has effect upon debtor default
d) Security Interest defined in 1-201(b)(35)
i) Interest in personal property/fixtures which secures payment or performance of an obligation.
ii) Any interest of a buyer of accounts, chattel paper, payment intangible, or promissory note in transaction subject to Art. 9
e) Default is not defined in the Code. Look to SA
i) Insecurity of SC – must deal w/ D in good faith (Rev. 1-304)
2) Art. 9 “intended as security doctrine” channels agmts back to Art. 9
a) UCC may apply when neither party expects it to – look beyond terms to effect of agmt
b) 9-109(a) & cmt.2: Art. 9 applies to a transaction, regardless of its form, that creates SI in personal property or fixtures by K
i) Apply definition of SI, SC
ii) Do lease v. sale comparison below for personal property. Basile is RE.
iii) Apply SC remedies upon default.
c) Basile real property same rule: deed conveying real property will be considered a mortgage when instrument is executed as security for a debt
d) Lease
i) Lease generally transfers right to possession and use of goods, while sale passes title
(1) If required to purchase at end of lease term, is sale under Art 9
(2) Monthly payments + option to buy is probably lease.
ii) 1-203 Whether lease creates SI is determined by facts of case (substance > form)
(1) 203(b) has 4 req to create SI. Not focus in our class.
iii) Problem is that if a shady agreement that tries to avoid Art. 9 by calling it “lease” is later deemed subject to Art. 9, and there was no perfection of SI, then lender is unSC
3) SC has more remedies than unSC upon DEFAULT
a) Policy: impacts how creditors structure transactions
b) Informal remedies avail to unSC (Intro (3)). Watch out for waiver of secured rights!
c) Remedy agreed to by contract (SA) 9-601(a)
i) Remember can put “power of sale” in K (mostly RE concept)
ii) Transfer of Possession agmt for personal property (sell at commercially reas time)
(1) Remember agreeing beforehand that SC gets to keep it are bad.
iii) Agreement to take possession: SC gets D to agree after default to transfer ownership. In return, D won’t be liable for deficiency judgment. 620(a) and (c) strict foreclosure
iv) Acceleration clause – unlikely D will agree after default. Wants to work it out.