1 Secured Transactions Assignment 26 Priority Under State Law

2 The Big Picture Part Two: The Creditor Third Party Relationship Chapter 6-7: Perfection Chapter 8: Priority Assignment 26: Priority Under State Law

3 The Big Picture Part Two: The Creditor Third Party Relationship Chapter 6-7: Perfection Chapter 8: Priority Assignment 26: Priority Under State Law Chapter 9: Specific Priority Rules Assignment 28: Lien Creditors against Secureds Assignment 29: Future Advances Assignment 31: Preferences Assignment 32: Secureds against Secureds Assignment 36: Buyers against Secureds Land, Fixtures, Agriculture and Minerals

4 The Big Picture Assignment 26 revisits three prior assignments:

5 The Big Picture Assignment 26 revisits three prior assignments: Assignments 4 and 5: Foreclosure sale Assignment 3: Possession pending foreclosure

6 The Big Picture Assignment 26 revisits three prior assignments: Assignments 4 and 5: Foreclosure sale Assignment 3: Possession pending foreclosure but in the three-party context

7 The Rules Governing Foreclosure Subordinate Prior Under which sale held

8 The Rules Governing Foreclosure 1.Sale discharges the lien under which the sale is held and all subordinate liens, § The buyer takes subject to prior liens 3.The proceeds go: 1.To the expenses of sale 2.To the lien under which the sale is held 3.To subordinate liens 4.To the debtor Subordinate Prior Under which sale held

9 The Rules Governing Foreclosure 1.Sale discharges the lien under which the sale is held and all subordinate liens, § The buyer takes subject to prior liens 3.The proceeds go: 1.To the expenses of sale 2.To the lien under which the sale is held 3.To subordinate liens 4.To the debtor BeforeAfter Subordinate Prior

10 The Rules Governing Foreclosure 1.Sale discharges the lien under which the sale is held and all subordinate liens, § The buyer takes subject to prior liens 3.The proceeds go by §9-615(a) BeforeAfter Subordinate Prior

11 The Rules Governing Foreclosure 1.Sale discharges the lien under which the sale is held and all subordinate liens, § The buyer takes subject to prior liens 3.The proceeds go by §9-615(a) a.To the expenses of sale BeforeAfter Subordinate Prior

12 The Rules Governing Foreclosure 1.Sale discharges the lien under which the sale is held and all subordinate liens, § The buyer takes subject to prior liens 3.The proceeds go by §9-615(a) a.To the expenses of sale b.To the lien under which the sale is held BeforeAfter Subordinate Prior

13 The Rules Governing Foreclosure 1.Sale discharges the lien under which the sale is held and all subordinate liens, § The buyer takes subject to prior liens 3.The proceeds go by §9-615(a) a.To the expenses of sale b.To the lien under which the sale is held c.To subordinate liens BeforeAfter Subordinate Prior

14 The Rules Governing Foreclosure 1.Sale discharges the lien under which the sale is held and all subordinate liens, § The buyer takes subject to prior liens 3.The proceeds go by §9-615(a) a.To the expenses of sale b.To the lien under which the sale is held c.To subordinate liens d.To the debtor (ignoring unsecureds) BeforeAfter Subordinate Prior

15 The Rules Governing Foreclosure 1.Sale discharges the lien under which the sale is held and all subordinate liens, § The buyer takes subject to prior liens 3.The proceeds go by §9-615(a) a.To the expenses of sale b.To the lien under which the sale is held c.To subordinate liens d.To the debtor (ignoring unsecureds) No proceeds go to prior (“senior”) liens. BeforeAfter Subordinate Prior

16 The Rules Governing Possession 1. § After default, a secured party may take possession of the collateral. 2. A judgment creditor has the right to levy on any property of the debtor 3. When rights to possession clash, the holder of the prior perfected lien has the right to possession. Grocer’s Supply v. Intercity Investment 4. The holder of a prior perfected lien must either foreclose or stand aside so that the holder of a junior lien may do so. Frierson v. United Farm Agency 5. The exercise of dominion and control over collateral a secured party has the right to possess is wrongful and constitutes conversion

17 The Rules Governing Possession 1. § After default, a secured party may take possession of the collateral. 2. A judgment creditor has the right to levy on encumbered or unencumbered property. The sheriff takes possession. 3. When rights to possession clash, the holder of the prior perfected lien has the right to possession. Grocer’s Supply v. Intercity Investment 4. The holder of a prior perfected lien must either foreclose or stand aside so that the holder of a junior lien may do so. Frierson v. United Farm Agency 5. The exercise of dominion and control over collateral a secured party has the right to possess is wrongful and constitutes conversion

18 The Rules Governing Possession 1. § After default, a secured party may take possession of the collateral. 2. A judgment creditor has the right to levy on encumbered or unencumbered property. The sheriff takes possession. 3. The senior secured party “is entitled, by virtue of its priority, to take possession of collateral from the junior secured party.” §9-609, comment The holder of a prior perfected lien must either foreclose or stand aside so that the holder of a junior lien may do so. Frierson v. United Farm Agency 5. The exercise of dominion and control over collateral a secured party has the right to possess is wrongful and constitutes conversion

19 The Rules Governing Possession 1. § After default, a secured party may take possession of the collateral. 2. A judgment creditor has the right to levy on encumbered or unencumbered property. The sheriff takes possession. 3. The senior secured party “is entitled, by virtue of its priority, to take possession of collateral from the junior secured party.” §9-609, comment Limit on 3: The prior creditor must either foreclose or stand aside so that the junior creditor can foreclose. Frierson v. United Farm Agency 5. The exercise of dominion and control over collateral a secured party has the right to possess is wrongful and constitutes conversion

20 The Rules Governing Possession 1. § After default, a secured party may take possession of the collateral. 2. A judgment creditor has the right to levy on encumbered or unencumbered property. The sheriff takes possession. 3. The senior secured party “is entitled, by virtue of its priority, to take possession of collateral from the junior secured party.” §9-609, comment Limit on 3: The prior creditor must either foreclose or stand aside so that the junior creditor can foreclose. Frierson v. United Farm Agency 5. Wrongful exercise of dominion and control over another’s collateral constitutes conversion

21 Notification date

22 Notification date Notice date Sale date 10 days §9-612 A secured party must send notice to the debtor of disposition, §9- 611(b)

23 Notification date Notification date Sale date 10 days §9-612 A secured party must send notice to the debtor of disposition, §9- 611(b) “Notification date” is the date on which the secured party sends that notice, §9-611(a)(1)

24 Notification date Notification date Sale date 10 days §9-612 A secured party must send notice to the debtor of disposition, §9- 611(b) “Notification date” is the date on which the secured party sends that notice, §9-611(a)(1) The secured party must also send notice to other lien holders who perfected by filing or notation as of the record date

25 Notification date Record date Notification date Sale date 10 days §9-612 A secured party must send notice to the debtor of disposition, §9- 611(b) “Notification date” is the date on which the secured party sends that notice, §9-611(a)(1) The secured party must also send notice to other lien holders who perfected by filing or notation as of the record date The record date is ten days before the notification date. §9- 611(c)(3)(B). 10 days, §9-611(c)(3)(B)

26 Notification date Record date Notification date Sale date 10 days §9-612 A secured party must send notice to the debtor of disposition, §9- 611(b) “Notification date” is the date on which the secured party sends that notice, §9-611(a)(1) The secured party must also send notice to other lien holders who perfected by filing or notation as of the record date The record date is ten days before the notification date. §9- 611(c)(3)(B). Main rule: Notify easy-to-find lien holders, perfected as of the record date. 10 days, §9-611(c)(3)(B)

27 Notification date Safe harbor steps: 1. Send a search request days before notification date Notification date Sale date 10 days §9-612 Search request days, §9-611(e)(1)

28 Notification date Safe harbor steps: 1.Send a search request days before notification date 2.If no search report by notification date, notify only the debtor and requesters Notification date Sale date 10 days §9-612 Search request days, §9-611(e)(1)

29 Notification date Safe harbor steps: 1.Send a search request days before notification date 2.If no search report by notification date, notify only the debtor and requesters 3.If search report, notify the creditors listed As of date Notification date Sale date 10 days §9-612 Search request days, §9-611(e)(1) Search report

30 Notification date Safe harbor steps: 1.Send a search request days before notification date 2.If no search report by notification date, notify only the debtor and requesters 3.If search report, notify the creditors listed 4.Record date doesn’t matter As of date Notification date Sale date 10 days §9-612 Search request days, §9-611(e)(1) Search report

31 Problem 26.1, page K 10K 29K 25K How much should Kinski bid? If she is the high bid, what title does she get? $200 sale expense

32 Problem 26.1, page K 10K 29K Before After 17K 25K How much should Kinski bid? If she is the high bid, what title does she get? $200 sale expense 1.Sale discharges the lien under which the sale is held and all subordinate liens 2.The buyer takes subject to prior liens

33 Problem 26.1, page K 10K 29K Before After 17K 25K How much should Kinski bid? If she is the high bid, what title does she get? $200 sale expense 1.Sale discharges the lien under which the sale is held and all subordinate liens 2.The buyer takes subject to prior liens

34 8K Problem 26.1, page Sale discharges the lien under which the sale is held and all subordinate liens 2.The buyer takes subject to prior liens 17K 10K 29K Before After 17K 25K How much should Kinski bid? Up to $8K $200 sale expense

35 Problem 26.1, page Sale discharges the lien under which the sale is held and all subordinate liens 2.The buyer takes subject to prior liens 17K 10K 29K Before After 17K 25K How much should Kinski bid? Up to $8K Expenses of sale? $200 sale expense 8K

36 Problem 26.1, page Sale discharges the lien under which the sale is held and all subordinate liens 2.The buyer takes subject to prior liens 3.The proceeds go: 1.To the expenses of sale 2.To the lien under which the sale is held 3.To subordinate liens 4.To the debtor 17K 10K 29K Before After 17K 25K How much should Kinski bid? Up to $8K Expenses of sale? Paid from proceeds $200 sale expense

37 Problem 26.2, page Sale discharges the lien under which the sale is held and all subordinate liens 2.The buyer takes subject to prior liens 3.The proceeds go: 1.To the expenses of sale 2.To the lien under which the sale is held 3.To subordinate liens 4.To the debtor 60K 8K Before After 75K How much should a buyer bid? $200 sale expense 30K

38 Problem 26.2, page Sale discharges the lien under which the sale is held and all subordinate liens 2.The buyer takes subject to prior liens 3.The proceeds go: 1.To the expenses of sale 2.To the lien under which the sale is held 3.To subordinate liens 4.To the debtor 60K 8K Before After 75K How much should a buyer bid? Zero? $200 sale expense 30K 60K 30K

39 Problem 26.2, page Sale discharges the lien under which the sale is held and all subordinate liens 2.The buyer takes subject to prior liens 3.The proceeds go: 1.To the expenses of sale 2.To the lien under which the sale is held 3.To subordinate liens 4.To the debtor 60K 8K Before After 75K How much should a buyer bid? Zero? Expenses of sale? $200 sale expense 30K 60K 30K

40 Problem 26.2, page Sale discharges the lien under which the sale is held and all subordinate liens 2.The buyer takes subject to prior liens 3.The proceeds go: 1.To the expenses of sale 2.To the lien under which the sale is held 3.To subordinate liens 4.To the debtor 60K 8K Before After 75K How much should a buyer bid? Zero? Expenses of sale? Paid by levying creditor. $200 sale expense 30K 60K 30K

41 Problem 26.2, page Sale discharges the lien under which the sale is held and all subordinate liens 2.The buyer takes subject to prior liens 3.The proceeds go: 1.To the expenses of sale 2.To the lien under which the sale is held 3.To subordinate liens 4.To the debtor Anyone want to bid $10? 60K 8K Before After 75K How much should a buyer bid? Zero? Expenses of sale? Paid by levying creditor. $200 sale expense 30K 60K 30K

42 Problem 26.3, page 450 We represent Diamond Head Bank, $270k first 270k 400k $200 sale expense ?

43 Problem 26.3, page 450 We represent Diamond Head Bank, $270k first a. Should we be concerned about this sale? 400k $200 sale expense 270k ?

44 Problem 26.3, page 450 We represent Diamond Head Bank, $270k first a. Should we be concerned about this sale? Before After 400k $200 sale expense 270k ?

45 Problem 26.3, page 450 We represent Diamond Head Bank, $270k first a. Should we be concerned about this sale? Miami sheriff sales Before After 400k $200 sale expense 270k ?

46 Problem 26.3, page 450 We represent Diamond Head Bank, $270k first a. Should we be concerned about this sale? Miami sheriff sales b.Can we protect ourselves by buying at the sale? Before After 400k $200 sale expense 270k ?

47 Problem 26.3, page 450 We represent Diamond Head Bank, $270k first a. Should we be concerned about this sale? Miami sheriff sales b.Can we protect ourselves by buying at the sale? Yes, but we are bidding additional money Before After 400k $200 sale expense 270k ?

48 Problem 26.3, page 450 We represent Diamond Head Bank, $270k first a. Should we be concerned about this sale? Miami sheriff sales b.Can we protect ourselves by buying at the sale? Yes, but we are bidding additional money c.Can we prevent the sale? Before After 400k $200 sale expense 270k ?

49 Problem 26.3, page 450 We represent Diamond Head Bank, $270k first a. Should we be concerned about this sale? Miami sheriff sales b.Can we protect ourselves by buying at the sale? Yes, but we are bidding additional money c.Can we prevent the sale? Maybe, Grocers Supply. Before After 400k $200 sale expense 270k ?

50 Problem 26.3, page 450 We represent Diamond Head Bank, $270k first a. Should we be concerned about this sale? Miami sheriff sales b.Can we protect ourselves by buying at the sale? Yes, but we are bidding additional money c.Can we prevent the sale? Maybe, Grocers Supply. Before After 400k $200 sale expense d. Were we entitled to sale notice? 270k ?

51 Problem 26.3, page 450 We represent Diamond Head Bank, $270k first a. Should we be concerned about this sale? Miami sheriff sales b.Can we protect ourselves by buying at the sale? Yes, but we are bidding additional money c.Can we prevent the sale? Maybe, Grocers Supply. Before After 400k $200 sale expense d. Were we entitled to sale notice? Remedy? 9-625(b), -617(b) §9-611(c)(3). The secured party shall send... notification to... any other secured party that... perfected by the filing of a financing statement [or in a federal or certificate of title system] 270k ?

52 Problem 26.3, page 450 We represent Diamond Head Bank, $270k first a. Should we be concerned about this sale? Miami sheriff sales b.Can we protect ourselves by buying at the sale? Yes, but we are bidding additional money c.Can we prevent the sale? Maybe, Grocers Supply. Before After 400k $200 sale expense d. Were we entitled to sale notice? Remedy? 9-625(b), -617(b) §9-611(c)(3). The secured party shall send... notification to... any other secured party that... perfected by the filing of a financing statement [or in a federal or certificate of title system] 270k ?

53 The Rules Governing Possession 1. § After default, a secured party may take possession of the collateral. 2. A judgment creditor has the right to levy on encumbered or unencumbered property. The sheriff takes possession. 3. The senior secured party “is entitled, by virtue of its priority, to take possession of collateral from the junior secured party.” §9-609, comment Limit on 3: The prior creditor must either foreclose or stand aside so that the junior creditor can foreclose. Frierson v. United Farm Agency 5. Wrongful exercise of dominion and control over another’s collateral constitutes conversion

54 Problem 26.4, page 451 Friend wants to borrow $100k on a second mortgage 800k 100k $1.2m

55 Problem 26.4, page 451 Friend wants to borrow $100k on a second mortgage a.If friend doesn’t pay $100k mortgage, what will we do? 800k 100k $1.2m

56 Problem 26.4, page 451 Friend wants to borrow $100k on a second mortgage a.If friend doesn’t pay $100k mortgage, what will we do? 800k 100k $1.2m

57 Problem 26.4, page 451 Friend wants to borrow $100k on a second mortgage a.If friend doesn’t pay $100k mortgage, what will we do? b.Will we recover our $100k? Before After 800k 100k $1.2m

58 Problem 26.4, page 451 Friend wants to borrow $100k on a second mortgage a.If friend doesn’t pay $100k mortgage, what will we do? b.Will we recover our $100k? Before After $1.2m 800k 100k 800k

59 Problem 26.4, page 451 Friend wants to borrow $100k on a second mortgage a.If friend doesn’t pay $100k mortgage, what will we do? b.Will we recover our $100k? Yes Before After 800k 100k $1.2m

60 Problem 26.4, page 451 Friend wants to borrow $100k on a second mortgage a.If friend doesn’t pay $100k mortgage, what will we do? b.Will we recover our $100k? Yes c.What if friend pays on $100k mortgage, defaults on $800k? Before After 100k 800k $1.2m

61 Problem 26.4, page 451 Friend wants to borrow $100k on a second mortgage a.If friend doesn’t pay $100k mortgage, what will we do? b.Will we recover our $100k? Yes c.What if friend pays on $100k mortgage, defaults on $800k? Before After 800k 100k $1.2m

62 Problem 26.4, page 451 Friend wants to borrow $100k on a second mortgage a.If friend doesn’t pay $100k mortgage, what will we do? b.Will we recover our $100k? Yes c.What if friend pays on $100k mortgage, defaults on $800k? Before After d.Can we protect ourselves by provision in the mortgage? 800k 100k $1.2m

63 Problem 26.4, page 451 Friend wants to borrow $100k on a second mortgage a.If friend doesn’t pay $100k mortgage, what will we do? b.Will we recover our $100k? Yes c.What if friend pays on $100k mortgage, defaults on $800k? Before After d.Can we protect ourselves by provision in the mortgage? Cross default clause helps a little 800k 100k $1.2m

64 Problem 26.4, page 451 Friend wants to borrow $100k on a second mortgage a.If friend doesn’t pay $100k mortgage, what will we do? b.Will we recover our $100k? Yes c.What if friend pays on $100k mortgage, defaults on $800k? Before After d.Can we protect ourselves by provision in the mortgage? Cross default clause helps a little “Wraparound” mortgage. She pays on $900k, we pay on $800k. 800k 100k $1.2m

65 1.Intercity levied on Grocery Store inventory for a $36K judgment 2.Grocers Supply sues Intercity and recovers $24K in damages from the levy 3.Grocers Supply gives the inventory back to Grocery Store 4.Intercity: What should we do now? Pessimist: Intercity can’t collect Optimist: Grocers Supply had right to property only for sale 5. How do we raise it? Motion to set aside earlier judgment for fraud? Declaratory judgment action? Problem 26.5, page K 36K Grocer’s Supply

66 1.Intercity levied on Grocery Store inventory for a $36K judgment 2.Grocers Supply sued Intercity; won return of collateral plus $24K in damages. Why? 3.Grocers Supply gives the inventory back to Grocery Store 4.Intercity: What should we do now? Pessimist: Intercity can’t collect Optimist: Grocers Supply had right to property only for sale 5. How do we raise it? Motion to set aside earlier judgment for fraud? Declaratory judgment action? Problem 26.5, page K 36K Grocer’s Supply

67 1.Intercity levied on Grocery Store inventory for a $36K judgment 2.Grocers Supply sued Intercity; won return of collateral plus $24K in damages. Why? 3.Intercity released levy; Grocers Supply gave the inventory back to Grocery Store 4.Intercity: What should we do now? Pessimist: Intercity can’t collect Optimist: Grocers Supply had right to property only for sale 5. How do we raise it? Motion to set aside earlier judgment for fraud? Declaratory judgment action? Problem 26.5, page K 36K Grocer’s Supply

68 1.Intercity levied on Grocery Store inventory for a $36K judgment 2.Grocers Supply sued Intercity; won return of collateral plus $24K in damages. Why? 3.Intercity released levy; Grocers Supply gave the inventory back to Grocery Store 4.Intercity: What should we do now? Pessimist: Intercity can’t collect Optimist: Grocers Supply had right to property only for sale 5. How do we raise it? Motion to set aside earlier judgment for fraud? Declaratory judgment action? Problem 26.5, page K 36K Grocer’s Supply

69 1.Intercity levied on Grocery Store inventory for a $36K judgment 2.Grocers Supply sued Intercity; won return of collateral plus $24K in damages. Why? 3.Intercity released levy; Grocers Supply gave the inventory back to Grocery Store 4.Intercity: What should we do now? Pessimist: Intercity can’t collect Optimist: Grocers Supply had right to property only for sale 5. How do we raise it? Motion to set aside earlier judgment for fraud? Declaratory judgment action? Problem 26.5, page K 36K Grocer’s Supply

70 1.Intercity levied on Grocery Store inventory for a $36K judgment 2.Grocers Supply sued Intercity; won return of collateral plus $24K in damages. Why? 3.Intercity released levy; Grocers Supply gave the inventory back to Grocery Store 4.Intercity: What should we do now? Pessimist: Intercity can’t collect Optimist: Grocers Supply had right to property only for sale 5. How do we raise it? Motion to set aside earlier judgment for fraud? Declaratory judgment action? Problem 26.5, page K 36K Grocer’s Supply

71 1.Intercity levied on Grocery Store inventory for a $36K judgment 2.Grocers Supply sued Intercity; won return of collateral plus $24K in damages. Why? 3.Intercity released levy; Grocers Supply gave the inventory back to Grocery Store 4.Intercity: What should we do now? Pessimist: Intercity can’t collect Optimist: Grocers Supply had right to property only for sale 5. How do we raise it? Motion to set aside earlier judgment for fraud? Declaratory judgment action? Problem 26.5, page K 36K Grocer’s Supply

72 1.Intercity levied on Grocery Store inventory for a $36K judgment 2.Grocers Supply sued Intercity; won return of collateral plus $24K in damages. Why? 3.Intercity released levy; Grocers Supply gave the inventory back to Grocery Store 4.Intercity: What should we do now? Pessimist: Intercity can’t collect Optimist: Grocers Supply had right to property only for sale 5. How do we raise it? Don’t levy. Motion to set aside earlier judgment for fraud? Declaratory judgment action? Problem 26.5, page K 36K Grocer’s Supply

73 A stay without bankruptcy Debtor Creditor

74 A stay without bankruptcy Debtor Creditor Problem: Debtor is in general default; wants to prevent levies while negotiating with creditors

75 A stay without bankruptcy Debtor Creditor Problem: Debtor is in general default; wants to prevent levies while negotiating with creditors

76 A stay without bankruptcy Debtor Creditor Problem: Debtor is in general default; wants to prevent levies while negotiating with creditors Solution: Debtor grants a SI to CMA as trustee for unsecureds

77 A stay without bankruptcy Credit Management Association, Trustee Debtor Creditor Problem: Debtor is in general default; wants to prevent levies while negotiating with creditors Solution: Debtor grants a SI to CMA as trustee for unsecureds SI

78 If an unsecured levies, CMA demands property from sheriff, then gives it back to Debtor 50 levies, 4-5 rulings by the courts, debtors won all 50. This is a stay without the filing of a bankruptcy This “stay” can continue indefinitely, even after making deal A stay without bankruptcy Credit Management Association, Trustee Debtor Creditor Problem: Debtor is in general default; wants to prevent levies while negotiating with creditors Solution: Debtor grants a SI to CMA as trustee for unsecureds SI

79 If an unsecured levies, CMA demands property from sheriff, then gives it back to Debtor 50 levies, 4-5 rulings by the courts, debtors won all 50. This is a stay without the filing of a bankruptcy This “stay” can continue indefinitely, even after making deal A stay without bankruptcy Credit Management Association, Trustee Debtor Creditor Problem: Debtor is in general default; wants to prevent levies while negotiating with creditors Solution: Debtor grants a SI to CMA as trustee for unsecureds SI

80 If an unsecured levies, CMA demands property from sheriff, then gives it back to Debtor 50 levies, 4-5 rulings by the courts, debtors won all 50. This is a stay without the filing of a bankruptcy This “stay” can continue indefinitely, even after making deal A stay without bankruptcy Credit Management Association, Trustee Debtor Creditor Problem: Debtor is in general default; wants to prevent levies while negotiating with creditors Solution: Debtor grants a SI to CMA as trustee for unsecureds SI

81 If an unsecured levies, CMA demands property from sheriff, then gives it back to Debtor 50 levies, 4-5 rulings by the courts, debtors won all 50. This is a stay without the filing of a bankruptcy How long can this stay last? A stay without bankruptcy Credit Management Association, Trustee Debtor Creditor Problem: Debtor is in general default; wants to prevent levies while negotiating with creditors Solution: Debtor grants a SI to CMA as trustee for unsecureds SI

82 If an unsecured levies, CMA demands property from sheriff, then gives it back to Debtor 50 levies, 4-5 rulings by the courts, debtors won all 50. This is a stay without the filing of a bankruptcy How long can this stay last? Even after parties make a deal! A stay without bankruptcy Credit Management Association, Trustee Debtor Creditor Problem: Debtor is in general default; wants to prevent levies while negotiating with creditors Solution: Debtor grants a SI to CMA as trustee for unsecureds SI

83 Problem 26.6, page K Property taxes have priority over preexisting liens

84 Problem 26.6, page K 2K Property taxes have priority over preexisting liens 90K

85 Problem 26.6, page K 2K Property taxes have priority over preexisting liens a.If the state forecloses its property tax lien, what effect on Fidelity’s mortgage? 90K

86 Problem 26.6, page 445 BeforeAfter 90K 2K Property taxes have priority over preexisting liens a.If the state forecloses its property tax lien, what effect on Fidelity’s mortgage? Mortgage is discharged 90K

87 Problem 26.6, page 445 BeforeAfter 90K 2K Property taxes have priority over preexisting liens a.If the state forecloses its property tax lien, what effect on Fidelity’s mortgage? Mortgage is discharged b. How can Fidelity self-protect during foreclosure? 90K

88 Problem 26.6, page 445 BeforeAfter 90K 2K Property taxes have priority over preexisting liens a.If the state forecloses its property tax lien, what effect on Fidelity’s mortgage? Mortgage is discharged b. How can Fidelity self-protect during foreclosure? Bid or pay the tax 90K

89 Problem 26.6, page 445 BeforeAfter 90K 2K Property taxes have priority over preexisting liens a.If the state forecloses its property tax lien, what effect on Fidelity’s mortgage? Mortgage is discharged b. How can Fidelity self-protect during foreclosure? Bid or pay the tax 90K Amalgamated Bank v. Superior Court, 57 Cal. Rpt. 3d 686 (2007). The bank’s designated bidder got stuck in traffic on the way to the foreclosure sale. Property worth $6.5 million was sold for $2,000. The court confirmed the sale. 90K

90 Problem 26.6, page 445 Before 90K 2K Property taxes have priority over preexisting liens a.If the state forecloses its property tax lien, what effect on Fidelity’s mortgage? Mortgage is discharged b. How can Fidelity self-protect during foreclosure? Bid or pay the tax If Fidelity pays, how get the money back? 90K After 90K

91 Problem 26.6, page 445 Before 90K 2K Property taxes have priority over preexisting liens a.If the state forecloses its property tax lien, what effect on Fidelity’s mortgage? Mortgage is discharged b. How can Fidelity self-protect during foreclosure? Bid or pay the tax If Fidelity pays, how get the money back? Subrogation? 90K After 90K

92 Problem 26.6, page 445 Before 90K 2K Property taxes have priority over preexisting liens a.If the state forecloses its property tax lien, what effect on Fidelity’s mortgage? Mortgage is discharged b. How can Fidelity self-protect during foreclosure? Bid or pay the tax If Fidelity pays, how get the money back? Subrogation? 90K After 90K Debtor Guarantor Creditor Debt Guarantee

93 Problem 26.6, page 445 Before 90K 2K Property taxes have priority over preexisting liens a.If the state forecloses its property tax lien, what effect on Fidelity’s mortgage? Mortgage is discharged b. How can Fidelity self-protect during foreclosure? Bid or pay the tax If Fidelity pays, how get the money back? Subrogation? 90K After 90K DebtorCreditor Debt Payment Guarantor

94 Problem 26.6, page 445 Before 90K 2K Property taxes have priority over preexisting liens a.If the state forecloses its property tax lien, what effect on Fidelity’s mortgage? Mortgage is discharged b. How can Fidelity self-protect during foreclosure? Bid or pay the tax If Fidelity pays, how get the money back? Subrogation? 90K After 90K Debtor Debt Guarantor

95 Problem 26.6, page 445 Before 90K 2K Property taxes have priority over preexisting liens a.If the state forecloses its property tax lien, what effect on Fidelity’s mortgage? Mortgage is discharged b. How can Fidelity self-protect during foreclosure? Bid or pay the tax If Fidelity pays, how get the money back? Subrogation? c. What provisions should be in Fidelity’s mortgage? 90K After 90K

96 Problem 26.6, page 445 Default 90K 2K Property taxes have priority over preexisting liens a.If the state forecloses its property tax lien, what effect on Fidelity’s mortgage? Mortgage is discharged b. How can Fidelity self-protect during foreclosure? Bid or pay the tax If Fidelity pays, how get the money back? Subrogation? c. What provisions should be in Fidelity’s mortgage? Failure to pay property taxes is a default. 90K

97 Problem 26.6, page 445 DefaultIf tax paid 90K 2K Property taxes have priority over preexisting liens a.If the state forecloses its property tax lien, what effect on Fidelity’s mortgage? Mortgage is discharged b. How can Fidelity self-protect during foreclosure? Bid or pay the tax If Fidelity pays, how get the money back? Subrogation? c. What provisions should be in Fidelity’s mortgage? Failure to pay property taxes is a default. Secured may pay the taxes and add them to the mortgage. 90K 92K

98 Problem 26.6, page 445 With escrow 90K 2K Property taxes have priority over preexisting liens a.If the state forecloses its property tax lien, what effect on Fidelity’s mortgage? Mortgage is discharged b. How can Fidelity self-protect during foreclosure? Bid or pay the tax If Fidelity pays, how get the money back? Subrogation? c. What provisions should be in Fidelity’s mortgage? Failure to pay property taxes is a default. Secured may pay the taxes and add them to the mortgage Debtor must pay estimated taxes into escrow monthly 90K

99 Friendly foreclosures UFTA §5. A transfer... is fraudulent... if the debtor made the transfer... without receiving a reasonably equivalent value in exchange... and the debtor was insolvent.... UFTA §3. For the purposes of section... 5, a person gives a reasonably equivalent value if the person acquires an interest of the debtor... pursuant to a regularly conducted, noncollusive foreclosure sale or execution of a power of sale.... BFP v. Resolution Trust Corp. 511 U.S. 531 (1994). We deem, as the law has always deemed, that a fair and proper price, or a “reasonably equivalent value,” for foreclosed property, is the price in fact received at the foreclosure sale, so long as all the requirements of the State's foreclosure law have been complied with.

100 Friendly foreclosures UFTA §5. A transfer... is fraudulent... if the debtor made the transfer... without receiving a reasonably equivalent value in exchange... and the debtor was insolvent.... UFTA §3. For the purposes of section... 5, a person gives a reasonably equivalent value if the person acquires an interest of the debtor... pursuant to a regularly conducted, noncollusive foreclosure sale or execution of a power of sale.... BFP v. Resolution Trust Corp. 511 U.S. 531 (1994). We deem, as the law has always deemed, that a fair and proper price, or a “reasonably equivalent value,” for foreclosed property, is the price in fact received at the foreclosure sale, so long as all the requirements of the State's foreclosure law have been complied with. BuyerSeller Ordinary sale for a pittance

101 Friendly foreclosures UFTA §5. A transfer... is fraudulent... if the debtor made the transfer... without receiving a reasonably equivalent value in exchange... and the debtor was insolvent.... UFTA §3. For the purposes of section... 5, a person gives a reasonably equivalent value if the person acquires an interest of the debtor... pursuant to a regularly conducted, noncollusive foreclosure sale or execution of a power of sale.... BFP v. Resolution Trust Corp. 511 U.S. 531 (1994). We deem, as the law has always deemed, that a fair and proper price, or a “reasonably equivalent value,” for foreclosed property, is the price in fact received at the foreclosure sale, so long as all the requirements of the State's foreclosure law have been complied with. BuyerSeller Void Ordinary sale for a pittance

102 UFTA §5. A transfer... is fraudulent... if the debtor made the transfer... without receiving a reasonably equivalent value in exchange... and the debtor was insolvent.... UFTA §3. For the purposes of section... 5, a person gives a reasonably equivalent value if the person acquires an interest of the debtor... pursuant to a regularly conducted, noncollusive foreclosure sale or execution of a power of sale.... BFP v. Resolution Trust Corp. 511 U.S. 531 (1994). We deem, as the law has always deemed, that a fair and proper price, or a “reasonably equivalent value,” for foreclosed property, is the price in fact received at the foreclosure sale, so long as all the requirements of the State's foreclosure law have been complied with. Friendly foreclosures Friendly Lienor Seller Friendly Lienor Foreclosure sale for a pittance

103 UFTA §5. A transfer... is fraudulent... if the debtor made the transfer... without receiving a reasonably equivalent value in exchange... and the debtor was insolvent.... UFTA §3. For the purposes of section... 5, a person gives a reasonably equivalent value if the person acquires an interest of the debtor... pursuant to a regularly conducted, noncollusive foreclosure sale or execution of a power of sale.... BFP v. Resolution Trust Corp. 511 U.S. 531 (1994). We deem, as the law has always deemed, that a fair and proper price, or a “reasonably equivalent value,” for foreclosed property, is the price in fact received at the foreclosure sale, so long as all the requirements of the State's foreclosure law have been complied with. Friendly foreclosures Friendly Lienor Seller Friendly Lienor Foreclosure sale for a pittance Valid