1. 1 Secured Transactions Assignment 5 Article 9 Sale and Deficiency

2. 2 Parts of Article 9 1.Definitions §9-100 2.Attachment §9-200 3.Perfection and Priority §9-300 4.Rights of Third Parties §9-400 5.Filing §9-500 6.Default §9-600 7.Transition §9-700

3. 3 Parts of Article 9 1.Definitions §9-100 2.Attachment §9-200 3.Perfection and Priority §9-300 4.Rights of Third Parties §9-400 5.Filing §9-500 6.Default §9-600 7.Transition §9-700

4. 4 Chapter 1: Creditors’ Remedies Under State Law Assignment 1: Remedies of Unsecured Creditors Assignment 2: Foreclosure Assignment 3: Repossession Assignment 4: Judicial Sales Assignment 5: Article 9 Sales Assignment 7: Bankruptcy Sales

5. 5 Diagramming asset values and lien amounts $80K Lien $50K Value $30K Deficiency

6. 6 Diagramming asset values and lien amounts $80K Lien $100K Value $20K Equity

7. 7 Judicial Sales

8. 8 Procedure:1.Sell collateral to highest bidder

9. 9 Judicial Sales Procedure:1.Sell collateral to highest bidder 2. Apply proceeds to the debt

10. 10 Judicial Sales Procedure:1.Sell collateral to highest bidder 2. Apply proceeds to the debt 3. Return surplus to the debtor

11. 11 Judicial Sales Procedure:1.Sell collateral to highest bidder 2. Apply proceeds to the debt 3. Return surplus to the debtor 4. Creditor can move for “deficiency”

12. 12 Judicial Sales Procedure:1.Sell collateral to highest bidder 2. Apply proceeds to the debt 3. Return surplus to the debtor 4. Creditor can move for “deficiency” Reasoning1. Property sells for “market (true) value”

13. 13 Judicial Sales Procedure:1.Sell collateral to highest bidder 2. Apply proceeds to the debt 3. Return surplus to the debtor 4. Creditor can move for “deficiency” Reasoning1. Property sells for “market (true) value” 2. Secured party receives full value of collateral (up to debt) and, with deficiency, full amount of debt

14. 14 Judicial Sales Procedure:1.Sell collateral to highest bidder 2. Apply proceeds to the debt 3. Return surplus to the debtor 4. Creditor can move for “deficiency” Reasoning1. Property sells for “market (true) value” 2. Secured party receives full value of collateral (up to debt) and, with deficiency, full amount of debt 3. Debtor pays no more than it owes (no “forfeiture”)

15. 15 Example 1 $80K Lien $100K Value $20K Equity

16. 16 Example 1 $80K Lien $100K Value $20K Equity 1.Sale is for $100K 2.$80 goes to secured 3.$20 goes to debtor 4.Debt is paid in full

17. 17 Example 1 $80K Lien $100K Value $20K Equity 1.Sale is for $100K 2.$80 goes to secured

18. 18 Example 1 $80K Lien $100K Value $20K Equity 1.Sale is for $100K 2.$80 goes to secured 3.$20 goes to debtor

19. 19 Example 1 $80K Lien $100K Value $20K Equity 1.Sale is for $100K 2.$80 goes to secured 3.$20 goes to debtor 4.Debt is paid in full

20. 20 $80K Lien $50K Value $30K Deficiency Example 2

21. 21 $80K Lien $50K Value $30K Deficiency 1.Sale is for $50K Example 2

22. 22 $80K Lien $50K Value $30K Deficiency 1.Sale is for $50K 2.$50K goes to secured Example 2

23. 23 $80K Lien $50K Value $30K Deficiency 1.Sale is for $50K 2.$50K goes to secured 3.Creditor sues for $30K deficiency Example 2

24. 24 $80K Lien $50K Value $30K Deficiency 1.Sale is for $50K 2.$50K goes to secured 3.Creditor sues for $30K deficiency 4.Debt paid in full? Example 2

25. 25 $100K secured debt Credit Bidding Secured Party Debtor Assume the debtor owes a $100K secured debt

26. 26 Credit Bidding Secured Party Debtor $100K secured debt Assume the debtor owes a $100K secured debt The Secured Party forecloses and the court orders a sale

27. 27 Credit Bidding Secured Party SheriffBuyer 1. Sheriff sells the collateral to the highest bidder Collateral $100K secured debt Assume the debtor owes a $100K secured debt The Secured Party forecloses and the court orders a sale

28. 28 Credit Bidding SheriffBuyer 1. Sheriff sells the collateral to the highest bidder 2. Sheriff pays proceeds to the secured party. $100K Collateral Secured Party $100K secured debt Assume the debtor owes a $100K secured debt The Secured Party forecloses and the court orders a sale

29. 29 Credit Bidding SheriffBuyer 1. Sheriff sells the collateral to the highest bidder 2. Sheriff pays proceeds to the secured party. 3. Payment reduces the amount owing. $100K Collateral Secured Party Assume the debtor owes a $100K secured debt The Secured Party forecloses and the court orders a sale

30. 30 Credit Bidding Sheriff $100K Collateral If the secured party is the Buyer, the money would go in a circle. So the law excuses both payments Secured Party $100K

31. 31 Credit Bidding Sheriff Collateral If the secured party is the Buyer, the money would go in a circle. So the law excuses both payments Secured Party

32. 32 Credit Bidding Sheriff If the secured party is the Buyer, the money would go in a circle. So the law excuses both payments Secured Party “$100K” Secured Party bids “$100K”

33. 33 Credit Bidding Sheriff If the secured party is the Buyer, the money would go in a circle. So the law excuses both payments Secured Party Secured Party bids “$100K” Sheriff transfers collateral Collateral

34. 34 Credit Bidding Debtor If the secured party is the Buyer, the money would go in a circle. So the law excuses both payments Secured Party Secured Party bids “$100K” Sheriff transfers collateral Debt is reduced by amount of the bid zero

35. 35 Judicial sale procedure problems Current system Legal notice advertising Buyers unable to inspect Caveat emptor as to title and condition Hostile situations Statutory right to redeem

36. 36 Judicial sale procedure problems Current system Legal notice advertising Buyers unable to inspect Caveat emptor as to title and condition Hostile situations Statutory right to redeem

37. 37 Judicial sale procedure problems Current system Legal notice advertising Buyers unable to inspect Caveat emptor as to title and condition Hostile situations Statutory right to redeem

38. 38 Judicial sale procedure problems Current system Legal notice advertising Buyers unable to inspect Caveat emptor as to title and condition Hostile situations Statutory right to redeem

39. 39 Judicial sale procedure problems Current system Legal notice advertising Buyers unable to inspect Caveat emptor as to title and condition Hostile situations Statutory right to redeem

40. 40 Judicial sale procedure problems Current system Legal notice advertising Buyers unable to inspect Caveat emptor as to title and condition Hostile situations Statutory right to redeem

41. 41 Typical bidding dynamics 1. Some sales are for substantial bargains prices; debtor suffers forfeiture 2. Some creditors bid without determining value; losing deficiencies, misleading others 3. Sales become a strategy game

42. 42 Sale procedures compared Judicial saleArticle 9 sale Purpose By whom? Legal standard? When final? Deficiency judgment? Lien over sale price Lien over market Sometimes none Effect

43. 43 Sale procedures compared Judicial saleArticle 9 sale PurposeDivide the collateral value between the debtor and secured By whom? Legal standard? When final? Deficiency judgment? Lien over sale price Lien over market Sometimes none Effect

44. 44 Sale procedures compared Judicial saleArticle 9 sale PurposeDivide the collateral value between the debtor and secured By whom? Legal standard? When final? Deficiency judgment? Lien over sale price Lien over market Sometimes none Effect

45. 45 Sale procedures compared Judicial saleArticle 9 sale PurposeDivide the collateral value between the debtor and secured By whom?Sheriff, clerk Legal standard? When final? Deficiency judgment? Lien over sale price Lien over market Sometimes none Effect

46. 46 Sale procedures compared Judicial saleArticle 9 sale PurposeDivide the collateral value between the debtor and secured By whom?Sheriff, clerkSecured party Legal standard? When final? Deficiency judgment? Lien over sale price Lien over market Sometimes none Effect

47. 47 Sale procedures compared Judicial saleArticle 9 sale PurposeDivide the collateral value between the debtor and secured By whom?Sheriff, clerkSecured party Legal standard?Fixed procedural requirements When final? Deficiency judgment? Lien over sale price Lien over market Sometimes none Effect

48. 48 Sale procedures compared Judicial saleArticle 9 sale PurposeDivide the collateral value between the debtor and secured By whom?Sheriff, clerkSecured party Legal standard?Fixed procedural requirements "Commercially reasonable" When final? Deficiency judgment? Lien over sale price Lien over market Sometimes none Effect

49. 49 Sale procedures compared Judicial saleArticle 9 sale PurposeDivide the collateral value between the debtor and secured By whom?Sheriff, clerkSecured party Legal standard?Fixed procedural requirements "Commercially reasonable" When final?On confirmation Deficiency judgment? Lien over sale price Lien over market Sometimes none Effect

50. 50 Sale procedures compared Judicial saleArticle 9 sale PurposeDivide the collateral value between the debtor and secured By whom?Sheriff, clerkSecured party Legal standard?Fixed procedural requirements "Commercially reasonable" When final?On confirmationUpon sale (Chavers) Deficiency judgment? Lien less sale price Lien less market Sometimes none Effect

51. 51 Sale procedures compared Judicial saleArticle 9 sale PurposeDivide the collateral value between the debtor and secured By whom?Sheriff, clerkSecured party Legal standard?Fixed procedural requirements "Commercially reasonable" When final?On confirmationUpon sale (Chavers) Deficiency judgment? Lien less sale price Lien less market Sometimes none Effect

52. 52 Sale procedures compared Judicial saleArticle 9 sale PurposeDivide the collateral value between the debtor and secured By whom?Sheriff, clerkSecured party Legal standard?Fixed procedural requirements "Commercially reasonable" When final?On confirmationUpon sale (Chavers) Deficiency judgment? Lien less sale price Lien less market Sometimes none Effect

53. 53 Sale procedures compared Judicial saleArticle 9 sale PurposeDivide the collateral value between the debtor and secured By whom?Sheriff, clerkSecured party Legal standard?Fixed procedural requirements "Commercially reasonable" When final?On confirmationUpon sale (Chavers) Deficiency judgment? Lien less sale price Lien less market Sometimes none Lien less sale price Lien less “would have” Sometimes none Effect

54. 54 Sale procedures compared Judicial saleArticle 9 sale PurposeDivide the collateral value between the debtor and secured By whom?Sheriff, clerkSecured party Legal standard?Fixed procedural requirements "Commercially reasonable" When final?On confirmationUpon sale (Chavers) Deficiency judgment? Lien less sale price Lien less market Sometimes none Lien less sale price Lien less “would have” Sometimes none EffectDouble sale

55. 55 Sale procedures compared Judicial saleArticle 9 sale PurposeDivide the collateral value between the debtor and secured By whom?Sheriff, clerkSecured party Legal standard?Fixed procedural requirements "Commercially reasonable" When final?On confirmationUpon sale (Chavers) Deficiency judgment? Lien less sale price Lien less market Sometimes none Lien less sale price Lien less “would have” Sometimes none EffectDouble saleSingle sale

56. 56 Settlement procedures compared Deed in lieuAcceptance of collateral, § 9-620 System PurposeSettlement that avoids foreclosure Formal requirements 1. Authenticated record if for partial satisfaction 2. Lack of objection if in full satisfaction Consumer exceptions 1. Waiver needed if xxxdebtor has paid 60% 2. No partial satisfaction 3. Not while debtor has xxx the collateral

57. 57 Settlement procedures compared Deed in lieuAcceptance of collateral, § 9-620 SystemReal estate PurposeSettlement that avoids foreclosure Formal requirements 1. Authenticated record if for partial satisfaction 2. Lack of objection if in full satisfaction Consumer exceptions 1. Waiver needed if xxxdebtor has paid 60% 2. No partial satisfaction 3. Not while debtor has xxx the collateral

58. 58 Settlement procedures compared Deed in lieuAcceptance of collateral, § 9-620 SystemReal estatePersonal property PurposeSettlement that avoids foreclosure Formal requirements 1. Authenticated record if for partial satisfaction 2. Lack of objection if in full satisfaction Consumer exceptions 1. Waiver needed if xxxdebtor has paid 60% 2. No partial satisfaction 3. Not while debtor has xxx the collateral

59. 59 Settlement procedures compared Deed in lieuAcceptance of collateral, § 9-620 SystemReal estatePersonal property PurposeSettlement that avoids foreclosure Formal requirements 1. Authenticated record if for partial satisfaction 2. Lack of objection if in full satisfaction Consumer exceptions 1. Waiver needed if xxxdebtor has paid 60% 2. No partial satisfaction 3. Not while debtor has xxx the collateral

60. 60 Settlement procedures compared Deed in lieuAcceptance of collateral, § 9-620 SystemReal estatePersonal property PurposeSettlement that avoids foreclosure Settlement/foreclosure that avoids foreclosure Formal requirements 1. Authenticated record if for partial satisfaction 2. Lack of objection if in full satisfaction Consumer exceptions 1. Waiver needed if xxxdebtor has paid 60% 2. No partial satisfaction 3. Not while debtor has xxx the collateral

61. 61 Settlement procedures compared Deed in lieuAcceptance of collateral, § 9-620 SystemReal estatePersonal property PurposeSettlement that avoids foreclosure Settlement/foreclosure that avoids foreclosure Formal requirements Deed intended to be absolute (no satisfaction unless agreed) 1. Authenticated record if for partial satisfaction 2. Lack of objection if in full satisfaction Consumer exceptions 1. Waiver needed if xxxdebtor has paid 60% 2. No partial satisfaction 3. Not while debtor has xxx the collateral

62. 62 Settlement procedures compared Deed in lieuAcceptance of collateral, § 9-620 SystemReal estatePersonal property PurposeSettlement that avoids foreclosure Settlement/foreclosure that avoids foreclosure Formal requirements Deed intended to be absolute (no satisfaction unless agreed) 1. Authenticated agree- ment partial satisfaction 2. Lack of objection if in full satisfaction Consumer exceptions 1. Waiver needed if xxxdebtor has paid 60% 2. No partial satisfaction 3. Not while debtor has xxx the collateral

63. 63 Settlement procedures compared Deed in lieuAcceptance of collateral, § 9-620 SystemReal estatePersonal property PurposeSettlement that avoids foreclosure Settlement/foreclosure that avoids foreclosure Formal requirements Deed intended to be absolute (no satisfaction unless agreed) 1. Authenticated agree- ment partial satisfaction 2. Lack of objection if in full satisfaction Consumer exceptions No1. Waiver needed if xxxdebtor has paid 60% 2. No partial satisfaction 3. Not while debtor has xxx the collateral

64. 64 Settlement procedures compared Deed in lieuAcceptance of collateral, § 9-620 SystemReal estatePersonal property PurposeSettlement that avoids foreclosure Settlement/foreclosure that avoids foreclosure Formal requirements Deed intended to be absolute (no satisfaction unless agreed) 1. Authenticated agree- ment partial satisfaction 2. Lack of objection if in full satisfaction Consumer exceptions NoNo acceptance: 1. If debtor paid 60% 2. In partial satisfaction 3. While debtor still has x the collateral (a)(2)(3)

65. 65 The Visible Article 9 Demo Skill: Using statutes to solve legal problems.

66. 66 The Visible Article 9 Demo Skill: Using statutes to solve legal problems. Principle: Look at the statute when applying.

67. 67 The Visible Article 9 Demo Skill: Using statutes to solve legal problems. Principle: Look at the statute when applying. Problem: Finding, recognizing and reading statutes quickly.

68. 68 The Visible Article 9 Demo §552(b)(1). Except as provided in sections 363 and 548 of this title, if the debtor and an entity entered into a security agreement before the commencement of the case and if the security interest created by such security agreement extends to property acquired before the commencement of the case and to proceeds, products, offspring, or profits of such property, then such security interest extends to such proceeds, products, offspring or profits acquired by the estate after the commencement of the case to the extent provided by such security agreement and by applicable bankruptcy law, except to any extent that the court, after notice and a hearing and based on the equities of the case, orders otherwise. Marking a statute to make it readable.

69. 69 The Visible Article 9 Demo §552(b)(1). Except as provided in sections 363 and 548 of this title, if the debtor and an entity entered into a security agreement before the commencement of the case and if the security interest created by such security agreement extends to property acquired before the commencement of the case and to proceeds, products, offspring, or profits of such property, then such security interest extends to such proceeds, products, offspring or profits acquired by the estate after the commencement of the case to the extent provided by such security agreement and by applicable bankruptcy law, except to any extent that the court, after notice and a hearing and based on the equities of the case, orders otherwise. Every statute is an if-then statement

70. 70 The Visible Article 9 Demo §552(b)(1). Except as provided in sections 363 and 548 of this title, if the debtor and an entity entered into a security agreement before the commencement of the case and if the security interest created by such security agreement extends to property acquired before the commencement of the case and to proceeds, products, offspring, or profits of such property, then such security interest extends to such proceeds, products, offspring or profits acquired by the estate after the commencement of the case to the extent provided by such security agreement and by applicable bankruptcy law, except to any extent that the court, after notice and a hearing and based on the equities of the case, orders otherwise. Every statute is an if-then statement

71. 71 The Visible Article 9 Demo §552(b)(1). Except as provided in sections 363 and 548 of this title, if the debtor and an entity entered into a security agreement before the commencement of the case and if the security interest created by such security agreement extends to property acquired before the commencement of the case and to proceeds, products, offspring, or profits of such property, then such security interest extends to such proceeds, products, offspring or profits acquired by the estate after the commencement of the case to the extent provided by such security agreement and by applicable bankruptcy law, except to any extent that the court, after notice and a hearing and based on the equities of the case, orders otherwise. Highlight primary conjunctions (“primary structure”)

72. 72 §552(b)(1). Except as provided in sections 363 and 548 of this title, if the debtor and an entity entered into a security agreement before the commencement of the case and if the security interest created by such security agreement extends to property acquired before the commencement of the case and to proceeds, products, offspring, or profits of such property, then such security interest extends to such proceeds, products, offspring or profits acquired by the estate after the commencement of the case to the extent provided by such security agreement and by applicable bankruptcy law, except to any extent that the court, after notice and a hearing and based on the equities of the case, orders otherwise. The Visible Article 9 Demo Highlight primary conjunctions (“primary structure”)

73. 73 §552(b)(1). Except as provided in sections 363 and 548 of this title, if the debtor and an entity entered into a security agreement before the commencement of the case and if the security interest created by such security agreement extends to property acquired before the commencement of the case and to proceeds, products, offspring, or profits of such property, then such security interest extends to such proceeds, products, offspring or profits acquired by the estate after the commencement of the case to the extent provided by such security agreement and by applicable bankruptcy law, except to any extent that the court, after notice and a hearing and based on the equities of the case, orders otherwise. The Visible Article 9 Demo Each clause has a subject, verb, and maybe direct object

74. 74 The Visible Article 9 Demo §552(b)(1). Except as provided in sections 363 and 548 of this title, if the debtor and an entity entered into a security agreement before the commencement of the case and if the security interest created by such security agreement extends to property acquired before the commencement of the case and to proceeds, products, offspring, or profits of such property, then such security interest extends to such proceeds, products, offspring or profits acquired by the estate after the commencement of the case to the extent provided by such security agreement and by applicable bankruptcy law, except to any extent that the court, after notice and a hearing and based on the equities of the case, orders otherwise. Each clause has a subject, verb, and maybe direct object

75. 75 The Visible Article 9 Demo §552(b)(1). Except as provided in sections 363 and 548 of this title, if the debtor and an entity entered into a security agreement before the commencement of the case and if the security interest created by such security agreement extends to property acquired before the commencement of the case and to proceeds, products, offspring, or profits of such property, then such security interest extends to such proceeds, products, offspring or profits acquired by the estate after the commencement of the case to the extent provided by such security agreement and by applicable bankruptcy law, except to any extent that the court, after notice and a hearing and based on the equities of the case, orders otherwise. Exceptions can be ignored until you understand the section

76. 76 §552(b)(1).  Except as provided in sections 363 and 548 of this title,  if the debtor and an entity entered into a security agreement before the commencement of the case and if the security interest created by such security agreement extends to property acquired before the commencement of the case and to proceeds, products, offspring, or profits of such property, then such security interest extends to such proceeds, products, offspring or profits acquired by the estate after the commencement of the case to the extent provided by such security agreement and by applicable bankruptcy law,  except to any extent that the court, after notice and a hearing and based on the equities of the case, orders otherwise.  The Visible Article 9 Demo Exceptions can be ignored until you understand the section

77. 77 §552(b)(1).  Except as provided in sections 363 and 548 of this title,  if the debtor and an entity entered into a security agreement before the commencement of the case and if the security interest created by such security agreement extends to property acquired before the commencement of the case and to proceeds, products, offspring, or profits of such property, then such security interest extends to such proceeds, products, offspring or profits acquired by the estate after the commencement of the case to the extent provided by such security agreement and by applicable bankruptcy law,  except to any extent that the court, after notice and a hearing and based on the equities of the case, orders otherwise.  The Visible Article 9 Demo “Cohesive phrases” are words that should be read together

78. 78 §552(b)(1).  Except as provided in sections 363 and 548 of this title,  if the debtor and an entity entered into a security agreement before the commencement of the case and if the security interest created by such security agreement extends ( to property acquired before the commencement of the case ) and ( to proceeds, products, offspring, or profits of such property ), then such security interest extends ( to such proceeds, products, offspring or profits acquired by the estate after the commencement of the case ) to the extent provided by such security agreement and by applicable bankruptcy law,  except to any extent that the court, after notice and a hearing and based on the equities of the case, orders otherwise.  The Visible Article 9 Demo “Cohesive phrases” are words that should be read together

79. 79 §552(b)(1).  Except as provided in sections 363 and 548 of this title,  if the debtor and an entity entered into a security agreement before the commencement of the case and if the security interest created by such security agreement extends ( to property acquired before the commencement of the case ) and ( to proceeds, products, offspring, or profits of such property ), then such security interest extends ( to such proceeds, products, offspring or profits acquired by the estate after the commencement of the case ) to the extent provided by such security agreement and by applicable bankruptcy law,  except to any extent that the court, after notice and a hearing and based on the equities of the case, orders otherwise.  The Visible Article 9 Demo Highlight secondary conjunctions

80. 80 §552(b)(1).  Except as provided in sections 363 and 548 of this title,  if the debtor and an entity entered into a security agreement before the commencement of the case and if the security interest created by such security agreement extends ( to property acquired before the commencement of the case ) and ( to proceeds, products, offspring, or profits of such property ), then such security interest extends ( to such proceeds, products, offspring or profits acquired by the estate after the commencement of the case ) to the extent provided by such security agreement and by applicable bankruptcy law,  except to any extent that the court, after notice and a hearing and based on the equities of the case, orders otherwise.  The Visible Article 9 Demo Highlight secondary conjunctions

81. 81 The Visible Article 9 Demo §552(b)(1). Except as provided in sections 363 and 548 of this title, if the debtor and an entity entered into a security agreement before the commencement of the case and if the security interest created by such security agreement extends to property acquired before the commencement of the case and to proceeds, products, offspring, or profits of such property, then such security interest extends to such proceeds, products, offspring or profits acquired by the estate after the commencement of the case to the extent provided by such security agreement and by applicable bankruptcy law, except to any extent that the court, after notice and a hearing and based on the equities of the case, orders otherwise.

82. 82 Collateral Acceptance Procedures (Consent) Full satisfaction (no deficiency) Partial satisfaction (specified deficiency) Secured party’s action Secured party sends unconditional proposal §9-620(b)(1). Secured party consents in an authenticated record §9-620(b)(1). Debtor’s action Secured party receives no objection to proposal within 20 days, § 9- 620(c)(2)(C). Debtor agrees to terms in a record authenticated after default, § 9-620(c)(1).

83. 83 Collateral Acceptance Procedures (Consent) Full satisfaction (no deficiency) Partial satisfaction (specified deficiency) Secured party’s action Secured party sends unconditional proposal §9-620(b)(1). Debtor’s action Secured party receives no objection to proposal within 20 days, § 9- 620(c)(2)(C).

84. 84 Collateral Acceptance Procedures (Consent) Full satisfaction (no deficiency) Partial satisfaction (specified deficiency) Secured party’s action Secured party sends unconditional proposal §9-620(b)(1). Debtor’s action Secured party receives no objection to proposal within 20 days, § 9- 620(c)(2)(C).

85. 85 Collateral Acceptance Procedures (Consent) Full satisfaction (no deficiency) Partial satisfaction (specified deficiency) Secured party’s action Secured party sends unconditional proposal §9-620(b)(1). Secured party consents in an authenticated record §9-620(b)(1). Debtor’s action Secured party receives no objection to proposal within 20 days, § 9- 620(c)(2)(C).

86. 86 Collateral Acceptance Procedures (Consent) Full satisfaction (no deficiency) Partial satisfaction (specified deficiency) Secured party’s action Secured party sends unconditional proposal §9-620(b)(1). Secured party consents in an authenticated record §9-620(b)(1). Debtor’s action Secured party receives no objection to proposal within 20 days, § 9- 620(c)(2)(C). Debtor agrees to terms in a record authenticated after default, § 9-620(c)(1).

87. 87 Article 9 deficiency provisions §9-615(d)(2). “[After application of the proceeds of sale] the obligor is liable for any deficiency.” 9-615(f). “If the transferee... is the secured party” then “the deficiency is based on the amount of proceeds that would have been realized in a sale to [some other transferee]” 9-626(3) If the secured party did not comply with Article 9 procedures for “collection, enforcement, disposition or acceptance,” liability is limited to the amount by which the secured obligation exceeds the greater of (1) the proceeds or (2) the amount that would have been realized by compliance.

88. 88 $80K Lien $30K Sale price $50K Deficiency Article 9 deficiency provisions Main rule §9-615(d)

89. 89 Article 9 deficiency provisions §9-615(d)(2). “[After application of the proceeds of sale] the obligor is liable for any deficiency.” §9-615(f). “If the transferee... is the secured party” then “the deficiency is based on the amount of proceeds that would have been realized in a complying disposition to [some other transferee]” 9-626(3) If the secured party did not comply with Article 9 procedures for “collection, enforcement, disposition or acceptance,” liability is limited to the amount by which the secured obligation exceeds the greater of (1) the proceeds or (2) the amount that would have been realized by compliance.

90. 90 Article 9 deficiency provisions §9-615(d)(2). “[After application of the proceeds of sale] the obligor is liable for any deficiency.” §9-615(f). “If the transferee... is the secured party” then “the deficiency is based on the amount of proceeds that would have been realized in a complying disposition to [some other transferee]” §9-626(a)(3) If the secured party did not comply with Article 9 procedures for “collection, enforcement, disposition or acceptance,”

91. 91 Article 9 deficiency provisions §9-615(d)(2). “[After application of the proceeds of sale] the obligor is liable for any deficiency.” §9-615(f). “If the transferee... is the secured party” then “the deficiency is based on the amount of proceeds that would have been realized in a complying disposition to [some other transferee]” §9-626(a)(3) If the secured party did not comply with Article 9 procedures for “collection, enforcement, disposition or acceptance,” liability is limited to the amount by which the secured obligation exceeds the greater of (1) the proceeds or (2) the amount that would have been realized by compliance.

92. 92 $80K Lien $50K that would have been realized Article 9 deficiency provisions Secured party buys cheaply §9-615(f) $30K Sale price Secured party fails to comply §9-626(a)(3)

93. 93 $80K Lien $30K Deficiency Article 9 deficiency provisions Secured party buys cheaply §9-615(f) $30K Sale price Secured party fails to comply §9-626(a)(3) $50K that would have been realized

94. 94 $100K Lien Fair market value $80K Problem 5.1, page 89 a.Commercially reasonable sale. How much is the deficiency? Sale price $70K

95. 95 $100K Lien Fair market value $80K Problem 5.1, page 89 a.Commercially reasonable sale. How much is the deficiency? $30K, §9-615(d)(2) b. How much to redeem? $100K, §9-623(b) c. Redeem this car or buy another like it for $80K? Redeem. Sale price $70K

96. 96 $100K Lien Fair market value $80K Problem 5.1, page 89 a.Commercially reasonable sale. How much is the deficiency? $30K, §9-615(d)(2) b. How much to redeem?. Redeem this car or buy another like it for $80K? Redeem. Sale price $70K

97. 97 $100K Lien Fair market value $80K Problem 5.1, page 89 a.Commercially reasonable sale. How much is the deficiency? $30K, §9-615(d)(2) b. How much to redeem? $100K, §9-623(b) c. Redeem this car or buy another like it for $80K? Redeem. Sale price $70K

98. 98 $100K Lien Fair market value $80K Problem 5.1, page 89 a.Commercially reasonable sale. How much is the deficiency? $30K, §9-615(d)(2) b. How much to redeem? $100K, §9-623(b) c. Redeem this car or buy another like it for $80K? Redeem. Sale price $70K

99. 99 $100K Lien Fair market value $80K Problem 5.1, page 89 a.Commercially reasonable sale. How much is the deficiency? $30K, §9-615(d)(2) b. How much to redeem? $100K, §9-623(b) c. Redeem this car or buy another like it for $80K? Redeem unless bankruptcy. Sale price $70K

100. 100 $100K Lien Fair market value $80K Problem 5.1, page 89 a.Commercially reasonable sale. How much is the deficiency? $30K, §9-615(d)(2) b. How much to redeem? $100K, §9-623(b) c. Redeem this car or buy another like it for $80K? Redeem unless bankruptcy. Sale price $70K d. Bank turns down $80K from Maxwell’s friend; then sells at auto auction for $70K. How much is the deficiency? $30K, §9-615(d)(2)

101. 101 $100K Lien Fair market value $80K Problem 5.1, page 89 a.Commercially reasonable sale. How much is the deficiency? $30K, §9-615(d)(2) b. How much to redeem? $100K, §9-623(b) c. Redeem this car or buy another like it for $80K? Redeem unless bankruptcy. Sale price $70K d. Bank turns down $80K from Maxwell’s friend; then sells at auto auction for $70K. How much is the deficiency? $30K?, §9-615(d)(2); §9- 627(a), (b)(3)

102. 102 § 9-627. Determination of Whether Conduct Was Commercially Reasonable. (a) [Greater amount obtainable under other circumstances; no preclusion of commercial reasonableness.] The fact that a greater amount could have been obtained by a collection, enforcement, disposition, or acceptance at a different time or in a different method from that selected by the secured party is not of itself sufficient to preclude the secured party from establishing that the collection, enforcement, disposition, or acceptance was made in a commercially reasonable manner.

103. 103 Problem 5.2.a. page 90 $47,136Sale proceeds

104. 104 Problem 5.2.a. page 90 $47,136Sale proceeds $750Advertise sale $3,000Attorney’s fees for replevin $1,500Preserving collateral $650Attorneys fees for sale preparation $350Attorneys fees for distribution $6,250Total expenses of sale

105. 105 Problem 5.2.a. page 90 $47,136Sale proceeds $750Advertise sale $3,000Attorney’s fees for replevin $1,500Preserving collateral $650Attorneys fees for sale preparation $350Attorneys fees for distribution $6,250Total expenses of sale $60,886Obligation secured (Principal + interest)

106. 106 Problem 5.2.a. page 90 $47,136Sale proceeds $750Advertise sale $3,000Attorney’s fees for replevin $1,500Preserving collateral $650Attorneys fees for sale preparation $350Attorneys fees for distribution $6,250Total expenses of sale $60,886Obligation secured (Principal + interest) Who gets the money? §9-615(a)

107. 107 Problem 5.2.a. page 90 $47,136Sale proceeds $750Advertise sale $3,000Attorney’s fees for replevin $1,500Preserving collateral $650Attorneys fees for sale preparation $350Attorneys fees for distribution $6,250 Total expenses of sale $40,886$60,886Obligation secured (Principal + interest)

108. 108 Problem 5.2.a. page 90 $47,136Sale proceeds $750Advertise sale $3,000Attorney’s fees for replevin $1,500Preserving collateral $650Attorneys fees for sale preparation $350Attorneys fees for distribution $6,250 Total expenses of sale $40,886$60,886Obligation secured (Principal + interest) $20,000Deficiency

109. 109 Problem 5.2.b. page 90 $75,000Sale proceeds $750Advertise sale $3,000Attorney’s fees for replevin $1,500Preserving collateral $650Attorneys fees for sale preparation $350Attorneys fees for distribution $6,250Total expenses of sale $60,886Obligation secured (Principal + interest)

110. 110 Problem 5.2.b. page 90 $75,000Sale proceeds $750Advertise sale $3,000Attorney’s fees for replevin $1,500Preserving collateral $650Attorneys fees for sale preparation $350Attorneys fees for distribution $6,250Total expenses of sale $60,886Obligation secured (Principal + interest) Is Auto Parts (judgment) entitled to $4,200? No, §9-615(a)(3)

111. 111 Problem 5.2.b. page 90 $75,000Sale proceeds $750Advertise sale $3,000Attorney’s fees for replevin $1,500Preserving collateral $650Attorneys fees for sale preparation $350Attorneys fees for distribution $6,250Total expenses of sale $60,886Obligation secured (Principal + interest) Is Auto Parts (judgment) entitled to $4,200? No, §9-615(a)(3)

112. 112 Problem 5.2.b. page 90 $75,000Sale proceeds $750Advertise sale $3,000Attorney’s fees for replevin $1,500Preserving collateral $650Attorneys fees for sale preparation $350Attorneys fees for distribution $6,250 Total expenses of sale $60,886 Obligation secured (Principal + interest) $7,864

113. 113 Problem 5.2.b. page 90 $75,000Sale proceeds $750Advertise sale $3,000Attorney’s fees for replevin $1,500Preserving collateral $650Attorneys fees for sale preparation $350Attorneys fees for distribution $6,250 Total expenses of sale $60,886 Obligation secured (Principal + interest) $7,864Who gets the money remaining?

114. 114 Problem 5.2.b. page 90 $75,000Sale proceeds $750Advertise sale $3,000Attorney’s fees for replevin $1,500Preserving collateral $650Attorneys fees for sale preparation $350Attorneys fees for distribution $6,250 Total expenses of sale $60,886 Obligation secured (Principal + interest) $7,864 Debtor (“surplus”) §9-615(d)(1)

115. 115 Problem 5.3, page 90 a. Are notices of sale required? §9-611(b). “A secured party that disposes of collateral... shall send... an authenticated notice of disposition... “ Is notice excused for disposition by auto auction? §9-611(d). “Subsection (b) does not apply if the collateral... is of a type customarily sold on a recognized market.” An auto auction is not a “recognized market.” Comment 9 to §9-610.

116. 116 Problem 5.3, page 90 a. Are notices of sale required? §9-611(b). “Except as otherwise provided in subsection (d), a secured party that disposes of collateral... shall send... an authenticated notice of disposition...” Is notice excused for disposition by auto auction? §9-611(d). “Subsection (b) does not apply if the collateral... is of a type customarily sold on a recognized market.” An auto auction is not a “recognized market.” Comment 9 to §9-610.

117. 117 Problem 5.3, page 90 a. Are notices of sale required? §9-611(b). “Except as otherwise provided in subsection (d), a secured party that disposes of collateral... shall send... an authenticated notice of disposition...” Yes, subject to (d). Is notice excused for disposition by auto auction? §9-611(d). “Subsection (b) does not apply if the collateral... is of a type customarily sold on a recognized market.” An auto auction is not a “recognized market.” Comment 9 to §9-610.

118. 118 Problem 5.3, page 90 a. Are notices of sale required? §9-611(b). “Except as otherwise provided in subsection (d), a secured party that disposes of collateral... shall send... an authenticated notice of disposition...” Yes, subject to (d). Does (d) excuse notice in auto auction disposition? §9-611(d). “Subsection (b) does not apply if the collateral... is of a type customarily sold on a recognized market.” An auto auction is not a “recognized market.” Comment 9 to §9-610.

119. 119 9. "Recognized Market." A "recognized market," as used in subsection (c) and Section 9-611(d), is one in which the items sold are fungible and prices are not subject to individual negotiation. For example, the New York Stock Exchange is a recognized market. A market in which prices are individually negotiated or the items are not fungible is not a recognized market, even if the items are the subject of widely disseminated price guides or are disposed of through dealer auctions.

120. 120 Problem 5.3, page 90 a. Are notices of sale required? §9-611(b). “Except as otherwise provided in subsection (d), a secured party that disposes of collateral... shall send... an authenticated notice of disposition...” Yes, subject to (d). Does (d) excuse notice in auto auction disposition? §9-611(d). “Subsection (b) does not apply if the collateral... is of a type customarily sold on a recognized market.” An auto auction is not a “recognized market.” Comment 9 to §9-610; Comment 7 to §9-611.

121. 121 Problem 5.3, page 90 a. Are notices of sale required? §9-611(b). “Except as otherwise provided in subsection (d), a secured party that disposes of collateral... shall send... an authenticated notice of disposition...” Yes, subject to (d). Does (d) excuse notice in auto auction disposition? §9-611(d). “Subsection (b) does not apply if the collateral... is of a type customarily sold on a recognized market.” An auto auction is not a “recognized market.” Comment 9 to §9-610; Comment 7 to §9-611. No.

122. 122 Problem 5.3, page 90 Can the debtors waive notice in the security agreement? §9-624(a). “A debtor... may waive the right to notification of disposition of collateral under Section 9- 611 only by an agreement to that effect entered into and authenticated after default.

123. Error in the text Page 99, seventh line of the third paragraph, “$20,000" should be “$30,000.” 123

124. 124 Problem 5.3, page 90 b. What if the bank doesn’t send them? (JP Morgan quote) Are we permitted to advise our client to break the law?

125. 125 Problem 5.3, page 90 b. What if the bank doesn’t send them? (JP Morgan quote) Are we permitted to advise our client to break the law? Model Rule 1.2(d). A lawyer shall not counsel a client to engage in conduct that the lawyer knows is criminal or fraudulent.... (page 55, 149)

126. 126 Problem 5.3, page 90 b. What if the bank doesn’t send them? (JP Morgan quote) Are we permitted to advise our client to break the law? Yes Model Rule 1.2(d). A lawyer shall not counsel a client to engage in conduct that the lawyer knows is criminal or fraudulent.... (page 55, 149)

127. 127 Problem 5.3, page 90 b. What if the bank doesn’t send them?

128. 128 Problem 5.3, page 90 b. What if the bank doesn’t send them? §9-625(b). [A] person is liable for damages in the amount of any loss caused by a failure to comply with this article. (c)(2) [I]f the collateral is consumer goods, a... debtor... may recover... an amount not less than the credit service charge plus 10 percent of the principal amount of the obligation or the time price differential plus 10 percent of the cash price.

129. 129 Problem 5.3, page 90 b. What if the bank doesn’t send them? §9-625(b). [A] person is liable for damages in the amount of any loss caused by a failure to comply with this article. (c)(2) [I]f the collateral is consumer goods, a... debtor... may recover... an amount not less than the credit service charge plus 10 percent of the principal amount of the obligation or the time price differential plus 10 percent of the cash price. How much is that on a $40,000 car? (financed for 5 years at 8%) http://www.bretwhissel.net/cgi-bin/amortize http://www.bretwhissel.net/cgi-bin/amortize $8663 plus $4000 = $12,663. Class action?

130. 130 Problem 5.3, page 90 c. Can the debtors agree to a deficiency amount after repossession?

131. 131 Problem 5.3, page 90 c. Can the debtors agree to a deficiency amount after repossession? §9-620(c)(1). Yes, in a “record authenticated after default.” §9-620(g). But not in a “consumer transaction.”

132. 132 Problem 5.4, page 90 Grizzly Bear Bank repossessed a helicopter that should have been worth $345,000. Electronics are missing. Hull is worth nothing. Wealthy guarantors. What should Bank do? Give notice Dispose of it in a commercially reasonable manner

133. 133 Problem 5.4, page 90 Grizzly Bear Bank repossessed a helicopter that should have been worth $345,000. Electronics are missing. Hull is worth nothing. Wealthy guarantors. What should Bank do? Give notice Dispose of it in a commercially reasonable manner

134. 134 Problem 5.4, page 90 Grizzly Bear Bank repossessed a helicopter that should have been worth $345,000. Electronics are missing. Hull is worth nothing. Wealthy guarantors. What should Bank do? Give notice Dispose of it in a commercially reasonable manner

135. 135 Problem 5.4, page 90 Grizzly Bear Bank repossessed a helicopter that should have been worth $345,000. Electronics are missing. Hull is worth nothing. Wealthy guarantors. What should Bank do? Give notice Dispose of it in a commercially reasonable manner Does that include throwing it away?

136. 136 § 9-610. Disposition of Collateral After Default. (a) [Disposition after default.] After default, a secured party may sell, lease, license, or otherwise dispose of any or all of the collateral in its present condition or following any commercially reasonable preparation or processing.

137. 137 Problem 5.4, page 90 Grizzly Bear Bank repossessed a helicopter that should have been worth $345,000. Electronics are missing. Hull is worth nothing. Wealthy guarantors. What should Bank do? Give notice Dispose of it in a commercially reasonable manner Does that mean spending Bank’s money to put electronics into it? §9-610(a) and Comment 4.

138. Problem 5.4.b, page 92 Grizzly Bear Bank repossessed a helicopter. Electronics are missing. Hull is worth nothing alone, but worth $345,000 with $245,000 of electronics

139. Problem 5.4.b, page 92 Grizzly Bear Bank repossessed a helicopter. Electronics are missing. Hull is worth nothing alone, but worth $345,000 with $245,000 of electronics Current alternative collateral values: 1. Zero without spending 2. $100K with spending

140. Problem 5.4.b, page 92 Grizzly Bear Bank repossessed a helicopter. Electronics are missing. Hull is worth nothing alone, but worth $345,000 with $245,000 of electronics What should Bank do? §9-610(a) Current alternative collateral values: 1. Zero without spending 2. $100K with spending

141. Problem 5.4.b, page 92 Grizzly Bear Bank repossessed a helicopter. Electronics are missing. Hull is worth nothing alone, but worth $345,000 with $245,000 of electronics What should Bank do? §9-610(a) Have to install the electronics? §9-610(a) and Comment 4 How big a deficiency if they don’t do it? $100,000 Zero Current alternative collateral values: 1. Zero without spending 2. $100K with spending

142. 142 Problem 5.4.b, page 92 Grizzly Bear Bank repossessed a helicopter. Electronics are missing. Hull is worth nothing alone, but worth $345,000 with $245,000 of electronics What should Bank do? §9-610(a) Have to install the electronics? §9-610(a) and Comment 4 Zero $590K lien $345K $245K If they spend $245K, the lien will be $590K, the value $345K, and the deficiency $245K

143. Problem 5.4.b, page 92 Grizzly Bear Bank repossessed a helicopter. Electronics are missing. Hull is worth nothing alone, but worth $345,000 with $245,000 of electronics What should Bank do? §9-610(a) Have to install the electronics? §9-610(a) and Comment 4 Zero If they spend $245K, the lien will be $590K, the value $345K, and the deficiency $245K If they don’t spend, the lien will be $345K, the value zero, and the deficiency $345K But what if failure to spend is not commercially reasonable? §9-626(a)(3) 143 $345K lien $345K

144. 144 Problem 5.4.b, page 92 Actual facts: Bank throws the hull away §9-626(a)(3). Liability...for a deficiency is limited to an amount by which the sum of the secured obligation [$345K], expenses, and attorney’s fees [Zero] exceeds the greater of: (A) the proceeds of the... disposition [Zero] or (B) the amount of proceeds that would have been realized [in a complying disposition] [$345K] Hypothetical facts: The secured party spends $245K of its own money to repair the helicopter, then sells the helicopter for $345K. How much of the $345K is “proceeds?” § 9-102(64). Proceeds... means... (A) Whatever is acquired upon the... disposition of collateral. The drafters meant “net proceeds after expenses”

145. Problem 5.4.b, page 92 Grizzly Bear Bank repossessed a helicopter. Electronics are missing. Hull is worth nothing alone, but worth $345,000 with $245,000 of electronics What should Bank do? §9-610(a) Have to install the electronics? §9-610(a) and Comment 4 Zero 145 $345K lien $345K Proceeds- error credit Zero: they forfeited their deficiency. If they spend $245K, the lien will be $590K, the value $345K, and the deficiency $245K If they don’t spend, the lien will be $345K, the value zero, and the deficiency $345K But what if failure to spend is not commercially reasonable? §9-626(a)(3)

146. 146 $277K Lien $50K equity Pedro buys the store from Lamp Fair for $327K Problem 5.5, page 90 $327K

147. 147 $277K Lien $50K equity Pedro buys the store from Lamp Fair for $327K Pedro defaults and surrenders the collateral Problem 5.5, page 90 $327K

148. 148 $277K Lien $50K equity Pedro buys the store from Lamp Fair for $327K Pedro defaults and surrenders the collateral Lamp Fair wants a $131K deficiency. Problem 5.5, page 90 $327K

149. 149 $277K Lien $131K Deficiency Problem 5.5, page 90 $146K

150. 150 $277K Lien $131K Deficiency Where does it say “no deficiency without a sale?” §9-620(a)(1). “A secured party may accept collateral in... satisfaction only if the debtor consents... ” §9-620(c)(1) “... Only if the debtor agrees to the terms of the acceptance in a record authenticated after default.” Problem 5.5, page 90 $146K

151. 151 $277K Lien $131K Deficiency Where does it say “no deficiency without a sale?” §9-620(a)(1). “A secured party may accept collateral in... satisfaction only if the debtor consents... ” §9-620(c)(1) “... Only if the debtor agrees to the terms of the acceptance in a record authenticated after default.” Problem 5.5, page 90 $146K

152. 152 $277K Lien $131K Deficiency Problem 5.5, page 90 $146K Where does it say “no deficiency without a sale?” §9-620(a)(1). “A secured party may accept collateral in... satisfaction only if the debtor consents... ” §9-620(c)(1). For partial satisfaction, “only if the debtor agrees to the terms of the acceptance in a record authenticated after default.”

153. 153 $277K Lien $131K Deficiency Where does it say “no deficiency without a sale?” §9-620(a)(1). “A secured party may accept collateral in... satisfaction only if the debtor consents... ” §9-620(c)(1). For partial satisfaction, “only if the debtor agrees to the terms of the acceptance in a record authenticated after default.” Problem 5.5, page 90 $146K Lamp Fair: We are proceeding under §9-610, not §9-620.

154. 154 $277K Lien $131K Deficiency Where does it say “no deficiency without a sale?” Problem 5.5, page 90 $146K Lamp Fair: We are proceeding under §9-610, not §9-620. Where does it say “no deficiency without a sale?” Lamp Fair: “We sold it to ourselves for $146K (credit bid). That’s the amount that would have been realized” §9-626(a)(3)

155. 155 $277K Lien $131K Deficiency Where does it say “no deficiency without a sale?” Lamp Fair: “We sold it to ourselves for $146K (credit bid). That’s the amount that would have been realized” §9-615(f)(2) §9-615(d)(2). [A]fter making the payments [credits]... required by subsection (a)... the obligor is liable for any deficiency. $146K Lamp Fair: We are proceeding under §9-610, not §9-620. Problem 5.5, page 90

156. 156 Paraphrasing statutes 1.Almost always a bad idea. Work from the statutes instead. Visible Article 9 for text; Statutory supplement for other. 2.9-610(a): “After default, a secured party may sell, lease, license, or otherwise dispose of any or all of the collateral...” Student: “If a creditor repossesses collateral, they have to sell it. Is that right?” 3.Changes in meaning Substitutes “have to” for “may” Substitutes “sell” for “sell, lease, license or otherwise dispose of” Substitutes “collateral” for “any or all of the collateral” 4.Every change of wording changes meaning for some case 5.(Right question: Does “may” mean “may” or “must?”)