Secured Transactions:
8.20.07
Remedies of Secured Creditors under state law: (p. 1-17)
A. Who is an Unsecured Creditor:
Creditor: anyone owed a legal obligation that can be reduced to a monetary judgment is a creditor of the party owing the obligation.
Involuntary Creditor: car accident, child support, prevail in a law suit, employment actions are involuntary creditors
Voluntary Creditor: getting a loan from a bank or other entity are voluntary creditors.
1. Unless a creditor contracts with the debtor for secured status or is granted it by statute, the creditor will be unsecured.
2. Unsecured Creditors are the “general creditors” or “ordinary creditors”.
3. If the unsecured creditor has already obtained a court judgment to establish liability, the creditor is a judgment creditor, but the mere grant of a judgment does not alter the creditor’s unsecured status.
B. How Do Unsecured Creditors Compel Payments:
Unsecured Rights are the minimum basic rights that all creditors have.
1. Writ of Execution: allows sheriff to seize the property of a debtor for a judgment creditor. The judgment creditor must tell the sheriff where to go and what to do.
a. there is usually a waiting period until you can file your writ of execution to pay or appeal.
b. Seizure of the Property: by the sheriff
c. There is a Sale of Property by the sheriff (the proceeds are given to the judgment creditor).
d. If the proceeds are not sufficient, the judgment creditor may have to file another writ of execution.
e. Discovery: needs to be detailed, to tell where the sheriff to go and when (it must be specific).
f. You file the writ of execution with the county clerk in the county were the property is.
2. If a writ of execution is unfeasible, the judgment creditor can go to small claims court (but he will still have to get a writ after small claims court).
3. As a lawyer, write a letter or call (but be aware of the Fair Debt Collections Practices Act you have to comply with it); you cannot threaten her.
4. Self Help of an unsecured creditor is not allowed, they have no right to self help (prohibits the creditor from seizing property for the purpose of off setting the debt owed to him).
A. In most instances, a prohibited seizure of a debtor’s property will constitute the tort of conversion. (wrongful exercise of dominion and control over another’s property; P need not establish that the D. acted with wrongful intent, but prove an intent to exercise dominion and control over the goods which is inconsistent with the P.’s rights) Winkle v. Condon. (Civil damages / remedy under state law)
B. Unsecured creditor who takes wrongful possession of property of the debtor may be charged with larceny (i.e. the unlawful taking and carrying away of someone else’s personal property with the intent to deprive the possessor of it permanently) (Criminal charges / remedy under state law).
C. a person who wrongfully seizes property may also be guilty of trespassfor going onto the land to repossess the property.
D. There may be liability for wrongful collection practices if the creditor attempts to collect from the debtor in an unreasonable manner.
5. Writ of Garnishment: if a third party is in possession of property of the debtor or owes money to the debtor, the creditor can cause the sheriff to serve a writ of garnishment on the third party (the effect is to make the third party pay).
A. The writ of garnishment on the bank account is only effective when the sheriff serves it on the bank.
6. Third Party Property: If the property seized turns out to be that of the third party, the judgment creditor may be liable for any damages caused to the third party (tort of conversion). The third party can refuse to accept return of property and instead recover its values from the judgment creditor.
7. Perjury / Contempt: When debtors refuse to answer questions during discovery, they can be subject to contempt sanctions. If they lie, then can be charge with perjury.
8. Preference: It is not fraudulent for a debtor to pay one of its creditors, even if the effect is to leave nothing for others, so long as the debtor does not make the payment for the purpose of defrauding others. (this is called preference).
a. It is good to tell your clients about them.
b. If you represent the other person, the implementation of fraudulent transfers laws are not good, and it may be too much of a hassle / expense.
9. Fraudulent Conveyance: If the debtor is fraudulently disposing of its property during the lawsuit, the creditor may be the right to an immediate “attachment” of whatever property the debtor still has.
10. Protection of Wages: Federal statutes provide that a minimum of 75 percent of debtor’s earnings from personal services will generally be exempt in all states (U.S.C. § 1671).
FOR HOMES / PERSONAL PROPERTY: you use writ of execution / foreclosure
FOR MONEY / BANK ACCOUNTS / WAGES / SALARIES / LAW SUIT RECOVERY / TAX-REFUNDS (Any funds in the hands of the third party due to the debtor): you use a writ of garnishment.
Vitale v. Hotel California Inc.
Tool:
Facts:
C. Limitations on Compelling Payment:
Problems: (p. 17)
1.1 (Process of Getting a Writ of Execution): Jeff is an unsecured creditor (he didn’t bargain for a security interest). Self help is not allowed, it can bring legal consequences such as being liable for tort of conversion / larceny / liability for wrongful collection practices. Rather in event of a default unsecured creditors, better to (Bring a collection action):
(STEPS TO A COLLECTION ACTION) (1) file a complaint, (2) defendant answers and/or counterclaims, (3) motion for summary judgment or other motions, (4) Discovery and present witnesses / evidence, court appearances, (5) judgment (to become a judgment creditor) (BUT) all the judgment is, is a legal obligation which has to be enforced; (6) FILE A WRIT OF EXECUTION with the county clerk of court in the county where the property is located (if exemption statute allows).
1.2: The self help of getting the lobsters via fraud would be considered conversion / larceny or wrongful collection. But she may want to wait until debtor tries to recover it in a civil suit because Look could argue that Konstandin owed him the money. HOWEVER, if Konstandin brings a criminal suit for theft or larceny you would tell him to be worried about the criminal charges and penalty) (which will bring too many legal fees because the criminal trial) (he faces criminal trial / record / sentencing and criminal penalties that exceed the amount of the original property including payback).
**Better to settle for the 19,000 or less (prosecutors will see the case as a loan dispute so show the prosecutor that this is a civil matter and that you are going to settle).
1.3: Benning is an unsecured (general) creditor. But there is no breach of the agreement and therefore no default. She did not negotiate for any control over the business.
1. (All of the bargaining power of the unsecured creditor is before the deal is made).
2. (General unsecured creditors become partners with the debtor because there is little you can do to reclaim your investment just because someone is not doing business the way you want them to).
IF Knopf defaults on the loan, she has the right to go to file a complaint and get a judgment and file a writ of execution after the judgment (but no right to self help) and a collection action would probably not be worth it because the good assets will probably be gone before she can get any of it.
3. If the day care defaults, she can go after the day care assets, and the personal assets of the owner.
4. To find out where the personal assets are, you have to do Discovery: (i.e. depositions, interrogatories); you have to serve them with a subpoena.
A. You can get the debtor in for depositions / interrogatories
B. You can look in county records for vehicle, and real estate.
C. You can serve subpoenas on “any person” (Wyo.Stat.Ann. § 1-17-402) including other employees, the guys wife, business partners, etc.
The day care hasn’t stopped making payments yet, so there is little she can do right now. However, depending on the exemption statute, she may be able to get some of the debt back from the assets of Ted Knopf (ex: 2,500 in Wisconsin (10,000 – 7,500 (exempt)).
1.4: We need to conduct discovery to determine where Knopf’s assets are. The sources of the information would be depositions by Knopf himself and by other workers of the day care. Since we already have a judgment for 12,000 we file a writ of execution with clerk of court, and instruct the sheriff as to how and when to execute the writ. The sheriff will then make a levy on Knopf’s property for execution of the judgment. If Knopf doesn’t pay, his property can be seized by the sheriff or he can be held in contempt of court and be arrested pursuant to further court order.
EXEMPTION STATUES: apply when an unsecured creditor is trying to levy, execute, seize or garnish. (THE DEBTOR MUST CLAIM THE EXEMPTION STATUTE in order for the debtor to get the statute).
A. Policy: We want to be humane and allow people to have some basic necessities of life
B. Positive: We also want people from being a burden on society (welfare) and get them on their feet.
C. Negative: Many debts go unpaid, it prevents creditors from seizing the most valuable, easy to find assets.
1.5: Compare and Contrast Wisconsin and Wyoming?
a. Knopf can keep 2,400 of his 6,000, she gets the rest 3,600 (it is partially ex
ent infringement, accident victim).
WHAT IS A SECURITY AGREEMENT? Basile v. Erhal Holding Company
+The Intended Security Doctrine (“Disguised Security Interest”) applies to personal property AND real property transactions regardless of form that creates a security interest in personal property or fixtures by Contract UCC § 9-109(a)(1).
+Article. 9 applies to a transaction, regardless of form, that creates a security interest in personal property or fixtures by contract (UCC § 9-109(a)(1)).
A. FORM OVER SUBSTANCE: All consensual security agreements in personal property and fixtures are covered by Article 9, except for transactions excluded… (UCC §9-109 cmt. 2).
B. When a security agreement is created, this Article applies regardless of form of the transaction or name the parties have given to it. (UCC §9-109 cmt. 2, last sentence).
C. Article 9 Applies to:
1. consensual transactions created by K
2. transactions that create a security interest
3. based on substance of transaction, not form or label assigned.
D. Consensual Lien: bargain for/negotiate for a security interest within the K.
E. Non-consensual Lien: through lawsuits (judicial liens) / statutory liens (mechanics liens, workman liens) (Article 9 does not apply)
+P. cannot waive their right of redemption even by stipulation in open court
+D. sole remedy is to institute an action in foreclosure. The P. will have a right to redeem the property at any time prior to the actual sale of the premises by tendering to D. the principal and interest due on the mortgage.
Facts: P. and D. reached a settlement where P. gave D. a deed in lieu and promise to pay back in one year, in exchange for a $101,303.59 loan which stated if P. defaulted, D. would be able to immediately record the deed in their name.
UCC § 1-201(37): “Security Interest”: means an interest in personal property or fixtures which secures payment or performance of an obligation…Whether a transaction creates a lease or security interest is determined by the facts of each case;
a. Factors to consider: primarily economics of the transaction. (UCC 1-201(37)).
+Fixtures: things that were once personal property that have been affixed to land.
+ Mortgage: A loan that gives the creditor an interest in real property
+ Right to Redeem: A debtor has a right to redeem (or pay the debt and retain the property) at any time up until the point of the sale of the real/personal property.
B. Foreclosure Procedure: (IMPORTANT INFORMATION, BUT NOT ON THE TEST)
1. Judicial Foreclosures: a creditor holding a mortgage or security interest typically files a civil action against the debtor. In the complaint, the creditor details the terms of the loan and the nature of the default, and requests that the equity of redemption be “foreclosed.” The complaint is served on the debtor and any subordinate lien holders, who then have a period of time (usually 20 days) in which to raise defenses.
A. Only when appeals have been resolved and the plaintiff has established that it is entitled to foreclose, will the court enter a final judgment of foreclosure.
B. A foreclosure sale must be confirmed by the court.
C. After the confirmation has been entered and the time for appeal has expired, the sheriff or clerk disburses the sale proceeds.
1. If the amount is greater than that owed to the foreclosing creditor, the surplus is distributed first to the holders of junior liens or mortgages and then to the debtor.
2. If the amount realized from the sale is less than the amount owed the foreclosing creditor, the foreclosing creditor can request a judgment for deficiency.
D. Ordinarily the debtor will remain in possession of the mortgaged premises until the sale has been confirmed by the court, the purchaser is then entitled to possession.
