What is default?
Event causing security interest to spring to life (per SA or failure to pay/perform).
Is self-help repossession allowed?
Yes, if it can be done without a breach of the peace.
What is a breach of the peace?
Any conduct by the secured party that has the potential to lead to violence (e.g., physical presence of the debtor + debtor’s verbal objection)
Breaking & entering residence is probably, but not of commercial property.
What can a secured party do if the debtor defaults?
- Take possession of the collateral (replevin or self-help), or
- Render equipment unusable and dispose of it on debtor’s property.
What is the general rule for strict foreclosure?
After default and repossession, the secured party may retain the collateral in full or partial satisfaction of the debt if the secured party does the following:
- Gives notice to any other creditors with interests in the same collateral. If they object within 20 days, must sell collateral.
- Get debtor’s consent.
What is a secured party’s resale right?
After default, a secured party may sell, lease, or otherwise dispose of the collateral in any reasonably commercial manner.
What is the effect of a foreclosure sale?
It discharges the security interest and all subordinate security interests. Superior interests remain on the collateral.
What notice is required prior to a foreclosure sale?
Secured party MUST send an authenticated notification of the disposition to the debtor and any secondary obligor.
What are the requirements for a foreclosure sale?
Every aspect of the sale must be commercially reasonable, including advertising, market, cleaning/repair, convenience of time/place of public auction.
When is a foreclosure sale deemed commercially reasonable?
- In the usual manner on any recognized market;
- At the current price in any recognized market at the time of disposition; OR
- In conformity with reasonable commercial practices among dealers in similar property.
What is a deficiency judgment?
When the foreclosure sale doesn’t bring in enough to pay the sale expenses and the secured party’s debt, the secured party can recover any deficiency from the debtor.
What happens if a secured party fails to comply with UCC rules?
- Actual damages for any violation
- Statutory penalty for violation of default rules when collateral is consumer goods.
- Rebuttable presumption that secured party loses deficiency judgment if violation on default.
What is a debtor’s right to redeem?
A debtor has the right to repay all obligations and reclaim property held by the secured party any time before resale.
Typically must pay entire loan balance, because most security agreements have an acceleration clause.
