Secured Transactions Outline

Secured Transactions:
I.       Who is an Unsecured Creditor:
A.    Creditor: anyone owed a legal obligation that can be reduced to a monetary judgment is a creditor of the party owing the obligation.
B.     Involuntary Creditor: car accident, child support, prevail in a law suit, employment actions are involuntary creditors
C.     Voluntary Creditor: getting a loan from a bank or other entity are voluntary creditors.
a.       Unless a creditor contracts with the debtor for secured status or is granted it by statute, the creditor will be unsecured.
b.      Unsecured Creditors are the “general creditors” or “ordinary creditors”. 
c.       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.
II.    How Do Unsecured Creditors Compel Payments:
A.    Unsecured Rights are the minimum basic rights that all creditors have.
a.       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.
1.      there is usually a waiting period until you can file your writ of execution to pay or appeal.
2.      Seizure of the Property: by the sheriff
3.      There is a Sale of Property by the sheriff (the proceeds are given to the judgment creditor).
4.      If the proceeds are not sufficient, the judgment creditor may have to file another writ of execution. 
5.      Discovery: needs to be detailed, to tell where the sheriff to go and when (it must be specific).
6.      You file the writ of execution with the county clerk in the county were the property is.
7.      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).
8.      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.
b.      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).
1.      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) 
2.      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).
3.      a person who wrongfully seizes property may also be guilty of trespassfor going onto the land to repossess the property.
4.      There may be liability for wrongful collection practices if the creditor attempts to collect from the debtor in an unreasonable manner.
B.     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.
C.     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.
D.    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.
E.     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. 
F.      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.
G.    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).
H.    FOR HOMES / PERSONAL PROPERTY: you use writ of execution / foreclosure
I.       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.
III.Limitations on Compelling Payment:
A.    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):
a.       (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).
b.      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).
1.      Policy: We want to be humane and allow people to have some basic necessities of life
2.      Positive: We also want people from being a burden on society (welfare) and get them on their feet.
3.      Negative: Many debts go unpaid, it prevents creditors from seizing the most valuable, easy to find assets.
IV.Security and Foreclosures:
A.    The Nature of Security
a.       Lien: a lien is a charge against or an interest in property to secure payment of a debt or performance of an obligation. Bank. Code § 101. (You need the security interest/lien in your K to secure payment or performance)
1.      A lien is a relationship between particular property (the collateral) and a particular debt or obligation
b.      Foreclosure: is a process that operates on the ownership of collateral. It transfers ownership from the debtor to the purchaser at the foreclosure sale and cuts off the debtor’s right to redeem the collateral.
1.      The general nature of the relationship is that if the debt is not paid when due, the creditor can compel the application of the value of the collateral to payment of the debt. (This is called Foreclosure)
c.       Real Property: not movable; Personal Property: movable.
1.      What you get for collateral will depend on custom and practice of the business you are in.
2.      You may want to bargain for terms within your security agreement that would cause default (Examples):
i.        you cannot sell the collateral (or certain business inventory) without creditors consent
ii.      you cannot take out more debt
3.      The Usefulness of property as collateral will ultimately depend on:
i.        how much value the creditor can extract from it after the default (will it bring anything at resale?) (AND)
ii.      how much leverage the creditor can derive from the creditor’s ability to deprive the debtor of the property (how much will the debtor be willing and able to pay to keep it?). 
d.      Default: the right to enforce the debt against the property that serves as collateral is contingent upon the occurrence of a default.
e.       Why some people are not secured: the creditor will bargain for a higher interest rate, the creditor doesn’t want to go through the formalities, custom and practice in the industry, no opportunity to negotiate (patent infringement, accident victim).
V.    WHAT IS A SECURITY AGREEMENT
A.    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).
B.     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.       Article 9 Applies to:
1.      consensual transactions created by K
i.        Consensual Lien: bargain for/negotiate for a security interest within the K.
ii.      Non-consens