11 Article 9 Sale & Deficiency

Question 1

In what context does Article 9 apply to foreclosure sales?

Answer 1

Article 9 deals with non-real estate property.

Question 2

How are the proceeds from a disclosure sale distributed?

Answer 2

Distribution of Sale Proceeds:

1. ) expenses of storage and sale, and (if contracted for) reasonable attorney’s fees
2. ) satisfaction of the debt that’s owed to the SC who brought the foreclosure
3. ) satisfaction of the debt of junior lienholders 
4. ) any remained goes to the debtor

Question 3

What must be provided to debtor and other lienholders prior to a foreclosure sale?

Answer 3

• Reasonable notice must be provided to debtor and other lienholders prior to the sale:
o Post-default waiver of notice by the debtor is allowed;
o 10 days is assumed to be reasonable notice, but is not a minimum;
o Reasonable notice can be defined by contract;

Question 4

(a) What alternative might a secured creditor want instead of a foreclosure sale?
(b) what is required in ^(a)?

Answer 4

(a) Acceptance of Collateral in Full of Partial Satisfaction: Alternative to foreclosure where secured creditor takes possession but does not sell the collateral

(b)
• Requires written agreement by the debtor
• In consumer transaction, CANNOT agree to only partial satisfaction, must take in full satisfaction of the debt
• CAN take in full satisfaction with notice to debtor after 20 days of no response
o NOT available when the debtor has paid at least 60% of the purchase price, then must get affirmative agreement

Question 5

What happens when a secured creditor’s collateral is worthless in its present condition?

Answer 5

Worthless Collateral: may be obligated to perform commercially reasonable preparation if that will increase the sale value

Question 6

What is a deficiency claim and how does it occur?

Answer 6

Deficiency: a deficiency claim can be brought in the amount of the debt and expenses, minus the proceeds of the sale
• Deficiency requires a disposition—sale or agreement to let creditor take the property in partial satisfaction

Question 7

When does Art. 9 not apply to a non-real estate property transaction?

Answer 7

If a consumer transaction, Art. 9 does not apply with regard to unreasonable sales, instead common law applies.

Question 8

What common law approaches apply in the context of unreasonable sales in a consumer transaction?

Answer 8

Two Approaches:
o Do what Art. 9 mandates for non-consumer transaction (majority)
o Forfeit deficiency claim (minority)

Question 9

What damages might be available for lack of notice to debtor and other lienholders prior to a foreclosure sale?

Answer 9

o Secured creditor liable for actual damages resulting from lack of adequate notice;

o Liquidated Damages for Consumer Collateral: minimum damages are total cost of interest plus 10% of principal owed

Question 10

When may notice not be required to debtor and other lienholders prior to a foreclosure sale?

Answer 10

Notice may not be required when:
o There is a recognized market with set prices for the collateral (stock); or
o The collateral is perishable.

Question 11

What is required when a secured creditor takes possession of the debtor’s collateral in full or partial satisfaction of the debt?

Answer 11

• Requires written agreement by the debtor;
• In consumer transaction, CANNOT agree to only partial satisfaction; must take in FULL SATISFACTION of the debt;

• CAN take in full satisfaction with notice to debtor after 20 days if no response [from debtor]
o NOT available when the debtor has paid at least 60% of the purchase price, then must get affirmative agreement

Remember:
This is an Alternative to foreclosure where secured creditor takes possession but does not sell the collateral -