301 terms

Secured Transactions


Terms in this set (...)

a right of payment of monetary obligation . . . for property sold or services rendered not evidence by written agreement
Account debtor
person obligated on an account.
Account Financing:
borrowing against a group of accounts.
you can file a lawsuit against law enforcement individual when they, in bad-faith, neglected their duties to execute a writ of execution.
one to whom a debt or performance of an obligation is owed.
debtor must fix defaults by payment, which may include missed interest payments.
the wrongful taking of diminution and control over the property of another (don't have to prove intent)

Remedy: money judgement for market value
Consumer goods
goods that are primarily used for personal, household, or family use
one who owes a debt or the performance of an obligation to another.
the difference between the value of the property and the amount of secureddebt that they owe on the property.
cuts off debtor's rights to pay debt and keep the collateral (typically where the property is sold at a sheriff's sale & rights are extinguished)
good faith
honest in fact and the observance of reasonable commerical standards
insecurity clause
a claim that can be incorporated into a loan agreement that states even if the debtor does not miss a payment, a "default" can be triggered if he does certain things, take certain actions, or allows certain things to happen that imperils the financial situation and creates a situation that may likely give rise to a default later.
judgement creditor
unsecured creditor who has obtained court judgement to establish liability.
Judicial foreclosure (real estate)
foreclosure process accomplished by entry of court order
judicial interest
you get interest on the outstanding debt from judgement debtor up to the time you collect it.
seizure of property pursuant to the writ of execution [to impose will by force; to take stuff by force]
propose a new payment schedule on defaulted loan thorugh the bankruptcy process
non-judicial foreclosure (power of sale/deed of trust)
foreclosure process set by state law that does not involve the courts. It requires following certain specific rules.

About 25 states allow, including Oklahoma (which allows, but if debtor defaults he has right to insist on judicial foreclosure)
shorthand for granting a security interest over something.
written report of what happened in execution of writ (which reduces the judgement) until the debt is extinguished.
restores (de-accelerates) the loan to its pre-bankruptcy, undefaulted state.
Right of redemption
debtor's right to keep the collateral by paying off the debt.

Equitable right, codified by most states. Can't contract around
Secured Creditor
creditor with a claim against debtor for which specific assets are pledged.

Real property - can only mortgage over specific piece of real estate.

Personal Property (Article 9) - can grant security interest in blanket fashion over presently owed and future owned property.
Security interest
property right contingent on nonpayment of a debt.

a property right in a particular asset that gives a creditor the right to go after that asset and monetize it to their benefit.
Set off
right of the creditor to balance mutual debts with a debtor

Most common in provision of contract with a bank
Unsecured Creditor
creditor with a claim against a debtor for which no specific assets (called collateral) are pledged.
writ of attachment:
a prejudgment order that allows the sheriff to seize the property until the outcome of litigation is resolved.
writ of execution
a court order that orders the sheriff to take possession of property owned by a judgement debtor. The sheriff will sell the property and give the money to the judgement creditor, until the debt it paid off.
writ of garnishment
an order requiring a third-party to withhold some type of property of the creditors for delivery to a judgment creditor to whom they owe an overdue debt.
What are some ways to protect an unsecured creditor's interest?
include an insecurity clause in the loan agreement.

Before default, try to help the debtor. Negotiate in advance for control over business decisions.

Debtor may be more likely to work with creditor before default if the creditor changes the terms of the deal or if the debtor wanted more money from the creditor later down the road.
How do unsecured creditors compel payments?
To collect, the unsecured creditor must sue the debtor and get (typically default) judgement. This is likely filed in small claims court.

Creditor has the burden to establish: (1) he made loan to debtor; (2) debtor made an obligation to him; and (3) the debtor defaulted.

Creditor becomes judgement creditor once he receives judgmeent. It isn't the best way to get paid.

You must first determine the non-exempt assets, which are non-waiveable. these typically include home, clothes, tools of trade.

Determine assets by discovery or public record search.
Problem with determining assets by discovery or public record search?
Discovery: debtor may be able to move assets around if they see if coming and it is expensive.

Public record search: may be limited in what you can find
^Note - credit reports only allowed without debtor's permission to merchants intended to extend credit - system favors repear players.
What are the different methods for unsecured creditor to collect from a debtor?
writ of execution

writ of attachment

writ of garnishment
How does unsecured creditor collect $ from debtor by writ of execution?
This is a court order that orders the sheriff to take possession of property owned by a judgement debtor identified by the creditor. The sheriff will sell the property and give the money to the judgement creditor, until the debt is paid off.

Creditor will be required to indemnify the sheriff for liability of conversion (if creditor instructed sheriff to levy the wrong property). If creditor is found liable for conversion, would have to pay money judgemnt for market value.
What is the process for writ of execution?
File the writ, court signs it, and clerk issues the writ. This tells the sheriff the property that CREDITOR has identified.

Sheriff levies the property (can't levy exempt assets).

Sheriff sales the property.

Sheriff applies the proceeds to pay down the debt. Attorney's costs, sheriff's costs, and transaction costs reduce the amount that is applied to pay down the debt.

Sheriff files a return, which reduces the judgement.

Sheriff repeats until judgement is satisfied or there is no property left to seize.
What happens if sheriff, in bad-faith, neglected duty to execute a writ of execution?
creditor can file amercement action against the enforcement individual. Courts rarely find liability.

However, if the court does find liability the enforcement individual is on the hook for any deficiency. In theory, that individual could then sue the debtor for reimbursement, but that is unlikely to happen.
Can the sheriff seize property before the outcome of the litigation is resolved?
Yes - with a writ of attachment.
Generally, it is only granted under extraordinary circumstances.

Creditor will likely be required to post bond.
How does unsecured creditor collect $ from debtor by writ of garnishment?
this order required 3rd party to withhold some type of property of the debtors for delivery to a judgement creditor to whom they owe an overdue debt.
What is an unsecured creditor's status in regard to other unsecured creditors?
You take the amounts owed to each creditor and turn them into percentages to how they bear on the debtor's monetized assets.
What are the limitations imposed on a unsecured creditor for collected defaulted debt?
No self-help or criminal activities.

If engaged in self help, could be liable for larceny, theft, conversion, and wrongful collection practices

If engaged in criminal activities, creditor will be held criminally liable (and set off won't work - will have to shell out tons in fines and legal fees, and the debtor will still owe the full amount)
-banks can use set offs if it is included in their contract (system favors repeat lenders)
Fair Debt Collection Practices Act
federal statute that governs debt collection practices. It prohibits debt collectors from taking threatening actions that they don't intend to make (no scare tactics)
Voidable transfers
Creditor can set aside debtor's voidable transactions and recover the property transferred.

The Uniform Voidable Transfer Acts provides for two types of voidable transfers:
Those made with actual intent to hinder, delay, or defraud. [but if buyer took in good faith or for reasonably equivalent value, transfer not voidable]

Those made without receiving reasonably equivalent value when the debtor was insolvent or rendered insolvent by the transfer [insolvency = liabilities exceed assets]

Also - every sale conducted properly uner state law is for reasonably equivalent value.
What is one thing you should do when advising an unseucred creditor?
Do a cost-benefit analysis. Consider if the cost (time, money, stress, attorney's fees, possibilitiy there will be no asset to collect with levy) outweighs the benefit.
Background on the UCC
Made in order to create comprehensive law regarding commerce to create uniform standard.

UCC only applies to personal property, not real property.

It only applie to consensual or volitional securities, meaning can't have article 9 interest without your permission
What happens when 3rd party uses their assets for collateral for debtor to take out a loan?
The creditor is secured in regards to the 3rd party [in rem liability, meaning creditor can only go after the secured asset] and unseucred in regards to the debtor [meaning creditor can go after any of the debtor's assets]

This is common in commercial contexts for small businesses.
What is the re-characterization principle?
regardless of the form of the transaction, if the economic substance of the transaction is a security, then it is treated as a security.
^intended to protect debtors so they hve the right of redeption up to the time of the sale.

When the right to get the property is contingent on the debtor NOT paying, it is a security interest.
Common types of transactions that are intended as security
conditional sales

leases intended as a seucirty interest - won't be re-characterized if there is FMV for rent/lease and then FMV price for sale at the end of the lease that is NOT nominal.
-a transaction that looks like a lease is actually A SA where the obligation is for the full term of the lease and the term of the lease is equal to the remaining economic life.

Deed in lieu of foreclosure that is NOT effective immediately.
What are the two methods (outside of UCC) to foreclose on real estate?
judicial foreclosure

non-judicial foreclosure
What is non-judicial foreclosure (power of sale/ deed of trust)?
This is a process set by state law that does not invovle the courts. It requires you to follow specific rules.

The collateral is held in trust. The borrower agrees that in the event of default, the trustee can sell the proeprty and pay the loan form the proceeds of the sale.

About 25 states allow - Oklahoma allows, but debtor has right to insist on judicial foreclosure
How can you avoid the foreclosure process (real estate)?
Deed in lieu of foreclosure - it is a device or option that the debtor has to avoid the foreclosure process. This device allows them to hand over the property while avoiding foreclosure.

It must be effective immediately or it wil lbe treated as a security interest.
If you were a debtor, what would you ask the bank for in exchange of giving deed in lieu of foreclosure?
Equity in the property
Forgiveness of any deficiency (but that can result in tax liability)
Stay in the house a little longer
Under UCC, how can a secured party possess (repossess) defaulted collateral?
judicial repossession (writ of replevin)

Why is possession so important in a foreclosure procedure?
The person in possession of the property has a lot of leverage and power. Therefore, many creditors seek to repossess before foreclosing.

Upon repossession, the debtor is still the owner of the property and has the right to redeem any tiem prior to foreclosure
Repossession and redemption rights
Debtor is still owner after repossession and has the right to redeem any time prior to foreclosure/disposition.
Judicial repossession
Creditor gets writ/action for replevin. Police office or public officer assists in repossession, even at the objection of the debtor. They can force entry and break things down.
Self-help repossession
Unless otherwise agreed, after a default, secured party may either take possession of the collateral, or without removal, render equipemnt unusable and dispose of collateral on debtor's premises.

Secured creditor doesn't have to invovle court/public officials if secured party can get possession without breach of the peace.

If there is breach of the peace, creditor must come back later or obtain a writ of replevin
General rules for self-help
UCC allows initial entry on property to retrieve collatera. There is no claim for trespass until break of peace.

Police oficer may maintain the peace to make sure no one gets hurt and no laws are broken, but may not facilitate in the repossession.

Creditor can force entry so long as he secures the remaining property when he leaves (many security agreements will give the creditor the ability to force entry to obtain collateral if thre is a default)

May engage in deciet/misrepresentation (if someone, like guard, is present.
What are the limits on self-help?
No breach of the peace.

Copes of public officials can't assist in the self-help repossession. This would constitute a wrongful possession action.
Breach of the peace
standard to determine whether a creditor can engage in self-help to repossess collateral.

This is a low standard - most courts say the tenor of the exchange must be one that a physical altercation could ensure.

There must be a protest accompanied by at least the insinuation of phsyical force about to occur.

repossession agents and breach of the peace
if repossession agent is found liable for breach of the peace, that liability is automatically imputed up to the secured creditor.

No way for creditor to aovid liability for breach of the peace.

Policy - vicarious liability ensures the creditor will not treat the agent as an independent contractor and will hae incentive to monitor the agent's action to ensure no breach of the peace.
As a creditor, what should you put in a security agreement?
provision that debtor consents to entry to land/building to effect repossession.

Provision requiring debtor to assemble the collateral (not effective, but can increase damages for breach of contract)

CANNOT waive breach of peace requirement
How can a debtor breach the peace when creditor attempts to repossess collateral via self-help?
strong verbal objection (and can physically exist; threat of physical altercation)

secure collateral (guard)

do not hide collateral - it may be a crime and in bankruptcy, concealing is grounds for denying discharge.

can sleep on equipment with gun - discuss legal consequence, but don't advise him to do that
Self help & rendering equipment unusable
This applies to equipment only - meaning no consumer goods. Consumer goods are things that are used for personal, household, or family use.

If the item does not fall into the equipment category, the UCC allows parties to determine by agreement the standards measuring fulfillment of rights and debtor or obligor and the duties of a secured party under the rule stated in 9-602 if the standards are not manifestly unreasonable.

Many creditors use this provision to say they can waive the limitation of rendering only equipment unusable to extent to consumer goods as well.
Accounts financing
the UCC allows a secured party to take accounts receivables as collateral; the secured creditor may collect directly from an account debtor.

Businesses are usually engaged in account financing. They have accounts receivables and don't get paid right away, but continue to incur expenses. They often do not have enough funds to pay off their expenses. To solve this problem, businesses usually get a revovling (fluctuating) line of credit.

To secured a revovling line of credit, the bank takes the account receivables as collateral.
Why are accounts receivables valuable?
Less chance you will lose value in enforcement because you do not have to convert to cash.

The UCC decreases the cost of collection because it simplifies the process (no sheriff, repo man, judicial sale)
What are the mechanics of securing an account as collateral?
the secured party will not loan the full amount, usually only 60%.

The loan is discounted beucase there are inherit risks as a creditor when you take an account as collateral.

Teh debtor could create phony slaes, sell defective products, take proceeds and not remit to the bank; or sell to buyers of questionable credit.
how is secured creditor able to monitor the debtor?
Audits - although it can be expensive.

The right to set off - can required debtor to have all business accoutns at creditor's bank and include in the agreement the right to set off. Can see money coming in and the sources of the funds. They will know when there is a default and will be able to set off.

Lockbox arrangement - customer will send checks to a po box that gets deposited in a lock box. Bank gets access to the box, processess the checks, and deposits funds into business's banking account and bank will take the % due to them.
After debtor defaults, what methods can creditor do to collect on accounts receivable used as collateral?
Collect directly from the customer.

Upon default, secured creditor can notify the account debtor of the debtor's defualt and they must now pay the creditor directly.

Once account debtor receives notice they msut pay the secured creditor.
-any future payment made to account creditor does not operate to discharge the account debtor's obligations (and they would essentially have to pay again)
-if they pay the debtor, still must pay creditor but can institute action against debtor to get 1st payment back, but this is usually unsuccessful (not not have money and will only be unsecured creditor)

Account debtor right right to demand proof that there had there has actually been grant of security interest in the account.

the creditor can collect from the account debtor, but subject to any claims they could have asserted against the debtor
-defenses such as warranty claims are good against creditor
-these defenses reduce the amount owed.
Self help take away
The debtor can always prevent the repossession if the debtor knows waht to do.

Self-help remedies really affect uninformed, non-aggressive debtors.

It is NOT helpful for an aggressive debtor since any kind of aggression/physical threat constitutes a breach of the peace

The statute, thus, provides a remedy really only useful against the powerless, not useful for people whowould know how to watch out for themselves. This has led many advocates to suggest the self-help provision be removed entirely.
duties of secured creditor in possession of defaulted collateral
creditor must take reasonable care when it has collater in its custody.
-details of what constitutes reasonable care are fact specific.

UCC prohibits the use of collateral by a secured party inpossession except for the purpose of preserving the collatera.
-exception: creditor has court order or debtor specifically allowed in the security agreement.
Judicial foreclosure sale and the value of the collateral
An asset's actual value is not usually realized at a judicial sale.

-Bidders don't acutally know the real value of the property.
-Bidders may think the market value is wrong.
-Judicial notices don't give much info and has unappealing ad
-debtor may be hostile
-buyers take the property subject to tital defects
-some buyers in states have the right to redeem proeprty even after the sale is over
-3rd party purchaser must pay out of pocket
Strict foreclosure (judicial)
foreclosure that does not result in a sale. It cuts off the debtor's equity of redemption and the secured creditor become the owners.

must foreclose through the court process, but it does not result in a sale.

i.e. contracts for deed, installment land contracts.
What is the judicial foreclosure sale procedure?
Specified by state statute, but most are conducted by public official. Anyone may bid at the sale, but usually the foreclosing creditor is the highest bidder.

Court usually must review the circumstances under which the sale was held and confirm the sale before the sale can be consummated. If confirm - executes deed; if does not confirm - will schedule resale
On what grounds can a debtor object to a judicial foreclosure slae?
office did not conduct sale in accordance with law or foreclosure judgement

sale price was inadequate
What happens once the judicial foreclosure sale is confirmed?
The public official disburses the sales proceeds.

FIRST - foreclosing creditor to reimburse for expenses of sale

SECOND - foreclosure creditor up to the amount of debt secured by the foreclosed collateral. If insufficient, creditor may ask for deficiency judgement (but not all states allow)

THIRD - surplus to debtor.
What happens if the highest bidder drops out of judicial foreclsoure sale?
States differ in the approach, but most of the time either (1) schedules another sale or (2) gives to the second highest bidder.
Debtors right of redemption
Debtor has right to redeem property up to the sale by paying full amount due under mortgage, including interest and attorney's fees.

In minority of states, debtor has statutory right to redeem collateral after the sale (by paying the purchase price)

Rights of redemption are freely transferable.
When can courts set aside the sale price of a judicial foreclosure sale?
When the sale "shocks the conscious"

Some states have found sale price of more than half of the FMV sufficient to shock the conscious to set sale aside.

Other state find sales less than 40% of FMV

Missouri has low standard - courts have refused to set aside sale that brought in 20-30% of FMV
anti-deficiency statutes
Some states have anti-deficiency statutes that prohibit the court from granting deficiency judgments in particular circumstances, give the court discretion to refuse to grant them, or limit the amounts of deficiency's to be granted.
Credit bidding
the secured creditor can bid any amount up to the amount that is owed to them at the judicial sale and they can do that without ever having to pay any real money.

Creditors out of pocket expenses: any amount bid bid above the amount owed to them; fees to sheriff for sale
What is benefit to creditor for credit bidding?
likely don't have pay out of pocket.

they have oportunity to resale the home. Likely will incur a loss, but can mitigate the risk by becoming the owner.
Is secured creditor typically able to collect balance of the debt remaining aftersale of collateral in judicial sale?
No - anti-deficiency statute may bar the creditor from obtaining a deficiency jugement

Even if they do get judgement, they are unsecured creditor. Debtor may be bankrupt or judgement proof.

therefore - creditors usually bid the whole credit even if the proeprty is not worth that much.
What advantages does a secured creditor have for giving a high credit bid?
minimize likelihood that the sale will be set aside for inadequacy of price.

minimize the liklihood debtor will exercise their statutory right to redeem the property

If creditor is outbid, creditor will recover the full amount of the secured debt; if it is not, if will have opportunity to inspect, evaluate, imporve and resell whenever they want.
value of the property is greater than the mortgage
the value of the property is less than the mortgage
Creditor's strategy when collateral is over-secured
Only buyer - should credit bid full amount of loan. They won't have to pay out of pocket and can resell the house to get more money in the end.

If anotehr buyer bids higher, should not bid anymore. Creditor would have to pay out of pocket for the cost that exceeds the amount of the mortgage and they will be reimbursed for the full amount of the mortgage by the bid and won't have the hassle of selling the house.
Creditor's strategy when under-secured
If potential for deficiency, should credit bid low, but not too low to try to drive up the deficiency (but those can be difficlut to collect).

If no potential for deficiency judgement, should credit bid the full amount of the loan. Credit will not have to pay out of pocket and makes it more difficult for debtor to redeem after sale.

If 3rd party buyer bids more than the mortgage, don't bid higher. Will have to pay out of pocket and their bid will cover the mortgage, so creditor recover completely.

If 3rd party bids near FMV, strategy will depend.
-may not want to bid higher becuse it may be the best deal you get. Creditor gets out of loan with a small deficiency. Consider wehterh state law allows for deficiency and wehtehr amount of deficiency will exceed cost of subseqeunt resale
-May want to bid higher; 3rd party bid might indicate proeprty is worth more than creditor thinks, buying gives chance to evaluate, 3rd party may be willing to buy after sale
Homeowner strategy for judicial foreclosure when over-secured
homeowner does not want to lose equity so best to try to sell the home before the judicial sale.

Can get family member to buy for a few more dollars than the bank's credit bid and lease to current homeowner - this insulates the property from other creditors.
Homeowner strategy for judicial foreclosure when under-secured
homeowner wants to encourage deficiency so will try to encourage bidding at the sale.

Let bank take the house, discharge debt in bankruptcy, and let family member buy from bank so homeowner can continue to live there.

Can get family member to pay off mortgage and let homeowner continue to live/repay family member. Problem - leaves debtor with encumbered house.
3rd party bidder strategy for judicial foreclsoure
Must determine value of home (sales price of homes nearby, but don't know square footage), mortgage of home (check complaint), condition of title (check the land records), and condition of the house (drive by)

3rd party shoud only bid if the risk is worth the time and money. If above 4 factors don't carry through, it is a waste of time. Even if theydo, homeowner may still redeem the property after you purchase it as the sale.
UCC strict foreclosure
After a default occurs, the debtor can consent to the secured party retaining the colalteral in full or partial satisfaction of the obligatin (limtatino to consumer transactions)

Consent to partial satisfaction - debtor must agree to the terms in record authenticated after default.

Consent to full satisfaction - (1) debtor agrees to terms in record authenticated after default; or (2) creditor sends debtor proposal for retention of the collateral in full satisfaction of the debt anddoes not receive an otification of objection to the proposal within 20 days (oral objection insufficient, inaction is deemed consent.
What happens if creditor keeps collateral in UCC strict foreclosure notwithstanding the debtor's objection?
Debtor has two options: (1) order creditor to do a non-judicial sale; or (2) damages for failing to conduct a sale.

This is unlikely unless the collateral was worth significantly more than the debt. Otherwise, debtor will also bee on the hook for a deficiency judgement.

The biggest issue here would be clouded title.
UCC strict foreclosure limitation for consumer transactions
Debtor can't agree to strict foreclosure until creidtor has taken possession of the collateral.

No strict foreclosure if debtor has paid at least 60% of the loan (can waive, but only in written agreement after default).

No partial satisfaction - only full saitsifaction (this makes a sale an automatic prerquistie for deficiency judgement).
UCC article 9 sale - NOTICE
Creditor must give debtor notice of the sale. Must also give notice to other creditors with a lien against that property.

Commercial transaction: 10 days
Consumer transactions: reasonable period of time

Debtor retains right to redeem up to the point of disposition (sometimes better to redeem than buy new because may still be on the hook for deficiency).
Exceptions to the Art. 9 sale notice requirement
-perishable goods

-goods that threaten to delcine speedily in value

-goods customarily sold on a recognized market.
Recognied market: fungible goods where prices aren ot subject to individual negotiation (sale of auto at autction not recognied market but minority of courts allow; usually stock/commodity)
Can you waive article. 9 notice requirement?
Prior to default, debtor cannot waive notice reuirement but is able to define the scope of its obligatiosn so long as it is not manifestly unreasonable. (i.e. can't waive, but can agree on shorter amount of time)

After default, debtor can waive notice requirement.
UCC art. 9 sale procedure
The secured creditor conducts the sale and distributes the sale proceeds. The UCC gives secured creditr broad latittude to determine method and timing of sale.

Sale must be commercially reasonable.
art 9 sale - commercially reasonable
UCC imposes duty on creditor that every aspect of the dispostion (including method, manner, time, place and terms) be commercially reasonable.

-can't waive, but can define the standards governing its obligations so long as it is not manifestly unreasonabley

After default, creditor may "sell, lease, license, or otherwise dispose of" collateral in its present condition or following any commerically reasonable preparation or processing.
-note Can't dispose of colalteral in present condtion when it would be commerically unreasonable.
How are proceeds of art. 9 sale disbursed?
First - reasonable expenses (retaking, preparing for disposition, processing and disposing) and attorneys fees if included in security agreement

Second - surplus to creditor; applied to interst first, then to principal. If tehre is deficiency, creditor may seek deficiency judgement.

Note - who bears the cost of art. 9 sale depends on wehther there is deficiency or not. If suplus, debtor pays. If deficiency, creditor pays.
What are the three usual problems with art. 9 sales?
1. Failure to sale collateral

2. REquirement of notice

3. requirement of commercially reasonable sale
Problem 1: failure to sale collateral
If the issue comes before the court, must consider:
-wehther an attempt to keep the colalteral without complying with strict foreclosure provisions. If yes, creditor has attempted an improper acceptance. Court could order a sale or award damages.

-wehther holding the collateral until the sell was commercially reaonable. If no, secured crditor's deficiency can be elminted/reduced.
Problem 2: requirement of notice
A creditor's failure to include the necesary information in notice can reduce/eliminate the deficiency; could be liable or actual damages; could be liable for statutory damages.

Creditor can only get deficiency judgement if he provided proper notice.
Problem 3: the requirement of a commercially reasonable sale
A commercially reasonable sale is not the same thing as the creditor geting the highest price.

Commercially reasonable sale is ordinarily one that will be a method that reasonable owners of the particular type of property would use if their own money was at stake.

Disposition is mande in commercially reaonaslbe manner if made:
-in usual manner on any recognized market
-at the price current in any reocgnized market at the time of disposition
-otherwise in conformity with reaosnable commercial practices among dealers in the type of property that was subject of the disposition.
What are factors that determine whether the sale is commercially reasonable?

advertisement (where was it publshed, intended audience, lead you to more information?)

condition at sale

purchase price (most courts find 60% of FMV commercially reasonable; some have found 10% is)
What happens to purchaser of collateral in non-compliance with art. 9 sales procedure?
by in large, a person who purchases collateral is protected from any defects that may have occured durign the sale (so long as they acted in good faith)
Remedies for noncompliance with art. 9 sale procedure
Deficiency judgement

statutory damages

Actual damages

Restrain the sale

Order sale
Non-Complianc with art. 9 sale procedure - deficnecy judgement
Creditor loses ability to get deficiency (in all or part) if violates artle 9 sale procedure [collection, enforcement, disposition, acceptance]
-once debtor puts compliance at issue, burden on breditor to establish they did comply.

For commercial transactions: deficiency limtied to greater of (1) the proceeds of the disposition or (2) the amount that would have been realized had there been art. 9 compliance.
-if creditor failes to give notice or conduct reaonaslbe sale, rebuttable presumptino value of collateral was equal to debt. Creditor can only get deficiency if he proves the collateral was worth some amount less than the amount of the debt.

For consumer transaction:
-majority: same as commercial transactions
-minoirty: complte bar from deficiency
Non-Complianc with art. 9 sale procedure - statutory damages
Mandatory damages re award by the court for no-compliance. Applies only to consumer goods.
Essentially statutory damages = interst payment + 10% of amount borrowed.

-creditor service charge + 10% of principle obligation [intrst that woud have been charged over the life of the loan] + [10% of principal]

-time price differential + 10% of cash price ([total pyametns require to be paid over time] - [payment price if purchased in cash]) + 10% of cash price
What happens if creditor wants to sell themselves the collateral?
When there is violation of art. 9 sale procedure, remedy includes diminishment of any deficiency and potentially damages.

Good faith purchaser is protected from problems problems with creditor's art. 9 disposition. But debtor maybe able to get property back if transferee obtained property in bad faith.

Good faith is considered to be honest in face and the observance of reasonable commercial standards of fair dealing.

Secured party may purchase collateral at a private disposition only if:
(1) colalteral is kind customarily sold on recognied market
(2) subject of widely distributed standards price quote (stocks/commodities)

But can also purchase as public disposition.
bankruptcy basics
bankruptcy is federal law that preempts state law (due to supremacy clause)

Purpose - coordianted resolution of debt problems for consumers and business.
Chapter 7 bankruptcy

All non-exempt assets are sold, proceeds are given to trustee who distribues the funds to the debtor's creditors in a particular orrder.

for businesses and indvidiauls
Chapter 11 bankruptcy

debtor creates plan of how to repay creditors out of future revenue, debt is discharged when the plan is approved.

creditors should approve, but courts can cram down.

For indvidiuals and businesses with complex debt.
Chapter 13 bankruptcy

debtor creates plan that pays creditors disposable income over 3-5 years. discharge upon completion.

for indiviudlas that do noth ave complex debt.
document that commence bankruptcy; filed by debtor
list of assets and debts; filed with petition
automatic stay
After debtor files its petition for bankruptcy, an automatic stay takes effect. This is an injunction that prevents a creditor from collecting any debt.

The automatic stay prohibits:
-acts to collect, assess, or recover a claim against the debtor.
-repossessing collateral after default (even if creditor has writ of replevin)

automatic stay can only be lifted when judges approval, but doesn't happen often.
-unsecured creditors can't lift stay
Secured creditrs can make motion to lift sta. Usually get a hearing/decision between 30-60 days.

secure creditor can't foreclose until stay is lifted.
How to lift automatic stay:
secured creditor must prove either:
(1) lack of adqute protection; or
(2) debtor has no equity and property not necessary for effective reorganization

No limit on the number of motions to lift the stay. If not granted now, can try against later
adequate protection (to lift stay)
adequate protection - protection against the decline in value of the secured creditor's collateral while in the hands of the debtor.

although this is amorphouse concept, there are a few ways to secured adequate protection:
-equity cusion: where equity in proeprty highly exceeds debts
-debtor can give security interest in other property
-periodic payments in the amount of the depreciation

No mechanical application. You can get creative with your argument (failure to maintain insurance = lack of adequate protection)

Does not protect against the loss of time value of money.
Necessary to effectuate reorganization (to lift stay)
necessary to effectuate reorganization means the property is necessary for he debto to make money in order to cntinue paying off the debt.

Also, debtor must have equity.
consequences for violating automatic stay
-contempt of court

-voidable by court

-severe penalties and sanctions
Analysis for stay problems:
1. is the stay in effect?

2. does anything in 362(a) prohibit the activities that the creditor engaged in?

3 if so is there an exemption in 326(B)?

4. If no, are there any grounds for lifting the stay under 362(d)?
property of the estate
all legal and equitable interest o the debtor in property as o the commecement of the case, except all exempt property
Proof of claim
creditors statement of debt owing.

once debtor files for bankruptcy, creditors must file proof of claim. All debts without proof of claim are discharges. (for unsecured creditor this is all they can do)

Generall, unless there is objection, claimsthat rae filed or scheduled are allowed. Thre is low incentive for unsecured creditor todispute someone's claim in bankruptcy. Generally, all disputes as to the veracity are done by the trustee.
debtor keeps paying pre-petitin debt post-discharge and hopes the secured creditor will not foreclose on the property
Debt discharged from bankruptcy
BR does not alter the amount of debt owed. Instead, it discahrges the debt owed which creates an injucntion that stops creditors from going after the amount of unpaid debt.

Discharged debt is essentially nonrecourse claim against asset. Secured creditor cannot pursue the devtor for unpaid portion of the debt post-BR.

Discharged debt still has consquenes - creditor can reort the unpaid debt to credit reporting agencies. This hangs over debtor's head for a while.
what creditors ask for in bankruptcy, govern by BR code. Not all claims are allowed.

This is different from debt. Debt is what debtor owes under the contract. The claim may not cover the whole debt.
Calculation of claim
(1) for secured and unsecured creditors, determine the claim - the prepetition amount owing.
[principles + prepetitin interst + prepetition attorneys fess (if in K)]
-unsecured claim ends here

(2) for secured creditors, determine teh value of the collateral; compare to claim clauclated in step 1.
-if undersecured, inquire ends here and claim is bifurcated

(3) if over-secured, add post-petition interset fees and attorneys fees (if in K) until total claim equals the vlue of the collateral
-secured creditor continues to receive post-petition interst up to the value of the collateral
secured creditor's claim gos through process of bifurcation and is broken into two parts:
(1) secured claim for amount of value of collateral
(2) unsecured in remaining amout of debt owed (shares pro rata with other unsecured creditors)
How is secured creditor paid when trustee sales property?
Secured creditor (1) receives its claim for the amount of proceeds or (2) collateral is sold subjec to its lien and it requrest payment from buyer

whether sell expenses will be deducted from secured creditor's recovery depends on whether creditor is under secured.
How is secured creditor paid if trustee abandons propery?
S.C. forecloses on the collateral and gets its value through foreclosure

trustee abandons where there is no equity in the collateral
How is secured creditor paid if debtor confirms plans?
S.C. is entitled to have the value off ts secured claims paid over the course of the plan.

To recieve value of the securedclaim, the present value of all future payments under the plan must equal the amount of the secured clai.

Tills sets the interst rate in ch. 13 (and for most courts ch. 11) at the prime rate pluse a rsik adjustment (typically 1-3%)
-prime rate: the rate at which a bank will charge its best customers.

essentially the sum of payment made under this plan will be reater than the amount of the secured claim.

better for plan to be confirmed today, rather than yesterday becuase of the time value of money.
how are unsecured claims paid?
through the bankruptcy estate
Valuation of collateral in BR
when the value is low, it is easier to show that there is not adequate protection and can lift the stay

when value is high, it is good for creditor because they can include post-petition interest.
what are the requirements for attachment?
1. Value must be given (by the secured party)

2. Debtor must have right in the collateral

3. Debtor must have authentiated security acreement (record) or (creidot has possession/control of property
requirements for attachment - value
The creditor must give value. The debtor is technicall always giving value when it gives security interst in property.

person gives value for the rights if the person acquires them (1) as security for pre-existing claim or (2) in return for any consideration suficient to support contract.

The value requirement is super broad. Essentially any consideration will work, even the former giving of consideration.

Typically, value occurs when the creditor gives a check or at the end of closing
requirements for attachment - rights in the collateral
When debtor grants security interest, they grant interest in whatever rights they have in the collateral.

If they do not hae rights, then attachement odes not occur until they otain rights in the collateral.

Rights in the colalteral may exist with:
(1) purchase agreement [some courts say buyer acquires equitable title after signing purchase agreement because seller not allowed to transfer title for period of time]; or
(2) signed bill of purchase/deed

Usually only compes up with LLC and corporation where representative grants security interst in the company's property
requirements for attachment - non-possessory security interst
requires security agreement authenticated by the debtor

Requirements for authenticated security agreement:
(1) autehtnicated
(2) record
(3) description of collateral
(4) intent to grant security interst
authenticated security agreement - autehtnication
to sign or to execute or otherwise adopt a symbol or accept a record, to attach to or logically associate with the record an electronic sound, symbol or process.
authenticated security agreement -record
information inscribed on tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form.

Unknown whether it must be in retrievable form forever (email/voicemail)

verbal record is insuficient (oral agreement)
authenticated security agreement - description of collateral
description of personal or real property is sufficient, whether or not it is specific, if it reasonably identifies what is described.

A description of collateral reasonably identifies the colalteral if the identity of the colalteral is objectively determinable.

The UCC permits any collateral description that makes collateral "objectively determinable" but also permits identificiation by specific listing, category, or UCC category
authenticated security agreement - intent to grant security interst
record must include some language evidencing debtor's intent to grant security interst.

Courts frequently hold a financing statement is insufficient to establis hthe requisuite intent.
-often filed in anticipation of possible security agreement;
-rarely contain grant langauge
-describes collateral more expansively
-not signed

an application for certificate of title may constitute requisuite intent becuase it is not complted unless there is an actual sale transactions.
What happens when there is missing information on the security agreement?
Courts are split on the fill in the blank issue when there is no debate that information was supposed to be included.

Majority view - the order of events does not matter so long as you end up with an authenticated security agreement that contains collateral description.

Minority view - whathever the debtor signed is binding; can't add to it without debtor's signature.

Not allowed to fill in blank after debtor has filed bankruptcy. Automatic stay prevents creditor from creating, perfecting , or enforcing a lien against the property of the estate.
authenticated security agreement - possessory security interest
this form of security is not as popular anymore, but essentially a pawn shop.

Control is possession for intangible property (bank accounts, receivables, securities, stocks, bonds, intelelctual property)
composite document rule
two or more documents can be combined to find the elements for creation of security interst.
-There are substantial difference in its application as to what documents courts will consider.

These documents must show (White and Summers):
-signed agreement evidencing intent to create security interst; and
-actual intent to create security interst [parole evidence may be used if parties disagree as to actual intent]
Description of collateral in credit card security agreements
language such as "goods purchased on your accoutn" or all items purchased iwth the card," for a majority of courts is suficnet description of the collateral

Other courts have found langauge such as "all merchanize pruchase on the credit cards" is an insufficient description of collateral.

Soluation - have sales receipt state it takes security intesr in the above purchased items
buyer in the ordinary course doctrine
security interest extinguishes when a buyer pruchases property from an indiviual who is in the business of selling the thing.

limitation - only appies to elimiante security interst if the security intest was incurred by the seller (not if security interst was from the seller of the seller)

i.e. someone buying from a lawyer selling used statute books is not protected, but someone buying from used book store is.
essentially a category of categories; all things that are moveable when a security interset attaches
stuff being sold in store (that includes leased goods)

goods, or then farm products, which arel eased by persons, of held by person for sale or leas,e or furnished under contract in the course and scope of business
farm products
have to be farmer

goods other than standing timber, with respect to which the debtor is engage in a farming operation which are crops, livestoc, supplies used or produced in farming opertion, or products of crops/livestock.
consumer goods
personal property primarily used for houshold, family, or personal use
personal property used in everyday course of business.

goods, other than inventoyr, farm products, or consumer goods.

this is fall back provision. If it fits somewhere else, use that category.
documentary collaeral
intangible rights but typically some document evidence the fact they exist
negotiable instruments (negotiable promissory notes, checks)

negoatiable insturment or any other writing that evidences a right to the payment of a monetary oblgiation, is not itself a security agreement or lease, and is of a type that in ordinary course of business is transferred by delivery with any necessary indorsement or assignment
chattel paper
document that represents the right to demand payment (promissory not) + security interst in particular goods

records that evidence both a monetary oblgiation and a security interst in specific goods, a security interst in sepcific goods and software used in the goods, a lease of specific goods, or lease of specific goods and license of software used in the goods.
investment property
security, whether certified or not, security entitlement, securities account, commodity contract, or commodity account.
intangible assets include:
accounts, deposit accounts, commercial tort claims and general intangibles
right to collect monetary value not evidence by written agreement for products sold or services rendered
deposit accounts
bank accounts
commercial tort claim
claim arising in tort with respect to which the claimant is an orgniazation or the claimaint is an indvidual and the claim (i) arose in the course of claimant's business/profession and (ii) does not include damages arising out of personal injury to or death of an individual
general intangibles
catchall, including patent, trademark, copyright, etc.

any personal property, other than accounts, chattel paper, commercial tort claims, depost accounts goods, instrument, and investment property.

term includes payment intangibles and software.
property that is acquires upon the sale, lease , license or dipsostion of the collateral
Categories not defined in the UCC
when there is no statutory definition, it comes down to the intent of the parties (did the partient intend to cover sheel, wool, and lambs, when they granted SI in crops?)

courts will look to multiple defintions of the term, but it will ulitmately come down to the intent of the parties.
security interest in household goods
FTA prohibits taking security interest in household goods, unless by virture of a purchase money security agreement.

household good is narrow subset of consumer goods: includes clothing, furntiure, applianes,china, personaleffects of the consumer
does not include electronics, workds of art, jewwely (excpet wedding ring)
What happens if you have collateral that falls into multipe UCC categories?
the court asks what the predominate use it. The premoninant use of the colalteral will be used to classify.
Prohibitions for description of collateral
prohibition against "omnibus" descriptions of collateral, meaning broad generalized descriptions are not permissible.
"all goods other than consumer goods" is not omnibus description. it uses UCC category. The plain langauge of UCC would seem to allwo this as sufficient description.

policy: prevent creditor overreach

canot use category to capture all commercial tort claims and all consumer goods. However, you can take a commercial tort claim or consumer good as collateral so long as you describe the specific consumer good or commercial tort action.
after-acquired property
property that is in the same collateral family but perhiaps the debtor does not yet own.

If you want to be absolutely certain your client will get after-acquired proeprty, expressly include in description of collateral. (all equipment and inventory, including after-acquired equipment and inventory)
after-acquired property: inventory and accounts
generally, all inventory, accounts, android turnover asets will include after-acquired proerpty, evne if the term is not included in the seurity interst.
after-acquired property: equipment
equipment is not given automatic inclusion of after-acquire property, unless it was speciiedin security agreement

"all equipment, including any additions to equipment" is sometimes read to mean additons and not after-acquired poreprty, but you may be able to make the argument that it is included.

Fixtures, like equipment, are not constantly turning over. Thus, there is no automatic inclusion of after-acquired property. Nevertheless, voer the course of tiem, many debtor's repair, refurbish, and re-decorate their premises so the security interst is likely no to remain valid for an extended amount of time.
after-acquired property: provisions with multiple interpretations
this is a provision that can be interpreted in two manners: one where after-acquired property is included, and one where it is not (i.e. crop problem)

If there was no collateral at the time the parties entered into the contract, then it woudl likely include after-acquired property.

essentially, this problem should be reovled based on the itnent of the parties at the time they enetered into the security agreement.

multiple interpretations lead to cloud on title.
-this is where there is a semblance of enough information to suggest that there is an interst owed by another party in the particular porperty. effect: no later lender will want to lend money becuase they may be second in line.

how to revole cloud on title:
-bring action before dispute has arisen if dispute is reltaivle ylikel ty occur or disput is imminent asking for delcaratory judgement
-ask creditor to waive claims to after-acquired property (not likely to happen)
-bankrutpcy (not always a good choice)
future advances
dragnet clause: future advances of money that are secured by the same collateral

to make a dragnent clause effective immediately, mean creditors require the debtor to make a inimal draw in order to give value and effecutate attachment.

ie.. you grant SI now, but most of money will be given to you alter. Despite the fact creditor has not given any money to debtor, any future advance of the laon is still secured by the security interset.
value tracing
the process to etermine the value arising out of a particular item of collateral, for example, proceeds
proceeds includes the following property
-what is acquired upon the sale, lease, license, exchange, or diposition of collateral;
-whatever is collectedon, or disributed on account of, collateral;
-rights arising out of collateral [some courts limit this and require some loss or dispossession of the party's interst in that collateral, not simply the collateral's use]
-the the extent of the value of the collateral, claims arising out of the loss of, or damage to the collateral
-to the extent of the value of the collateral and if payable to the debtor/secured party insurance payalbe by rason of the loss of or damage to the collateral
Proceeds characteristics
automatically included in all cases where seucirty interst is granted (agreement can be silent)

all or nothing concept - once you establish proceeds result from collateral, all of the proceeds become encumbered by the security agreement.

de minimus exception: where the value of the collateral disposed of is small and in realtion to what is received, courts ignore the dispotion of the collateral and hold that none of the property received is collateral
proceeds of accounts
an account is the right to receive monetary obligation not evdience by a notce for services rendered or products sold.

If the debtor arranged, prior to rendering services, to accept an object in exhcange for sercies, the object would NOT constitute a proceed of the account.
termination of the security interest in the collateral after disposition
with a creditor's authorization, the buyer of the collateral takes free of the security interset.

the secured creditor can only look to the debtor and proceeds for repayment.
continuation of the security intent in the collateral after unauthorized disposition
even if security agreement expressly prohibits the sale of collateral, the debtor has the power to transfer ownership to a buyer.

Upon an unauthorized disposition, a security interst continues in collateral notwithstanding diposition tehreof and a security interest attaches to any identifable proceeds of that collateral.

Normally, the security interst does continue.
-the buyer purchase the asset subject to the security agreemnt. Although the buyer is not liable for the debt, the creditor sitll hs an intrst in the collateral and mya repossess the colalteral if the original debtor stops paying. [practical efect - it's in purchaser's best interst to cotninue paying debt even though not personally liable]
-the buyer also assumes the debtor's debt, becoming the new debtor, and be bound by the existing security agreemnet.
limit on secured creditor's ability to trace collateral
SI continues to encumber proceeds only so long as the proceeds remain identifable. A SI attached only to identiable proceeds.

Creditor has burden of proof to identify proceeds through tracing.
-note: creditor may ask for a segregated bak account, which is a bank account that contains only the secured creditor's collateral.
commingled funds
debt puts the collateral together in one mass with identical noncollateral so that no one can tell which is actually which.

proceeds that are comingled with other proeprty are identifialbe proceeds:
-if not goods, the extent that secured party identifies the proceeds by method of tracing
lowest intermediate balance rule
the proceeds of the disposition of collateral remain ina comingeld account so longas the account balance is equal to or exceeds the amount of the proceeds.

AKA- debtor is presumed to spend out of the account's non-proceeds first. Anything that remains is presumed to be proceeds.

Potential problem: when the debtor uses protion of creditor's proceeds in account to purchase new proeprty, how does reditor collect the proceeds?
-ucc doesn't provide answer when it comes to tracing value in porperty
-Odinet suggest credito shoudl cliam entire property as his (traced value into proepty that jsut so happened to be worth more than the proceeds)

NOe - if debto starts eating fomrthe proceeds but then adds morem oney to the acocunt, the proceeds start to build up again.
transferee of funds from a deposit account
a transferee of funds from a deposit accoutn takes free of a security interst in that deposit account unless he acted inollusion with the debtor in violating the rights of the secured.
term ordinarily used to describe physical production; something the collateral produces
UCC does not define the term.

property defintion - granting someone right to come on their property an take something form their property

business: reveneus less expenses
money paid for temporary use of collateral
typically used regarding animsl
Other value tracing concepts & security agreement
for these terms to be covered as collateral, the security agreement must explicitly state it.

These terms are not defined in UCC. parties add these into the security agreemnt and give them their common meaning.

the value from these come, in part, from the original collateral
after-acquired property & value tracing
where security interest attaches to new peice of proprty.

It must be stated in security agreement to be included (exception for inventory and accounts)

replacements, additons, and substitutions are smilar (and consdiered non-value tracing concepts)

these come from entirely different source than collateral. security agreement must expressly state if these are included.
Value tracing during bankruptcy - distinction between proceeds and after-acquired property
-BR corut uses the same defintion for the purpose of proceeds as the UCC
-if agreement/appliable non-BR law provides, SI continues in proceeds, product, offsping, or profits, or rents.
-No SI in proceeds from after acquired account
-i.e. if creditor had no SI in account and debtor filed for BR, the creditor would only ahve SI in the account in existence at the time the BR was filed. SI does not attach to subsequence accounts or their proceeds.

after-acquired property:
-these clauses are ineffective as to property acquired after BR.
-note: clause sitll valid to after-acquired property prior to the filing.
Use of cash collateral during BR
as with the UCC, trustee must get secured creditor's permission or court order.

remedy for vioaltion:
-trustee's voidable power
-replacement lien granted as means of provifing adeuate protection
-debtor can be liable in tort for conversion (but that would leave creditor unsecured)
BR Makes special distinction with proceeds
Distinction between proceeds and labor

The debtor's right proceeds is qualified - based on the equities of the case, the BR judge can cut off or modify the creditor's rights in the proceeds and other value tracing concepts.

The proceeds delimma occurs where both the creditor's collateral and the debtor's labor contributed to the proceeds. Courts use the de minims rule or the equities of the case to determime how to split the baby to sepearte the value from the colalteral and the value from servies.
delbridge formula
the contributes to the proceeds share in proportion to their contributions.

Ask - what protion of revenue comes rom collateral description

Gunnison formula
labor and expenses are reimbursed; what is left is proceesd (net proceeds appraoch)

formula: [labor + expenses] - revenue = proceeds
Cafeteria operations formula
the cost of the collateral used by the debtor is reimbursed (aka - the value of the inventory contributed to make the proceeds)

cash collateral = [(d) / d + e + l] x P
-D: average depreciation of capital
-E = expenses
- L = labor
-P = proceeds
UCC equities exception - rule for change related to occupany
all room proceeds are cash collateral and subject to securties agreement

n/a to any other category
collateral use during bankruptcy
debtor may use collateral during bankruptcy, but must provide adeuate protection to creditors.

exception for cash collateral: debtor can use ash during BR, but only if they get the court permission or permission from the secured creditor
-cash colaltearl includes cash proceeds of collateral
-courts will usually give replacement lien if they allow use of cash collateral
breach of the loan agreement (contract principales); term contain in contract that specifies when efault occurs

-monetary default: where debtor missed a payment

-nonmonetary default - provision in contract that says, even if you don't miss a payment, a default occurs under certain circumstances. This is usually things that show the debtor is not monetarily healthy.
installment loan
loan repayable in more than one payment
payment on demand
immediately payable when the creditor requests payment
lines of credit
an arrangement in which the creditor agrees to lend and receive payment at times elected by the debtor up to the line amount and until the contracted due date of the line
when can creditor exercise insecurity clause
only if creditor in good-faith believes the prospect for payment impaired
rendering a debt previously payable at some future time due and payable now.

reason: withou clause, if debtor misses payment, the creditor would have to sue with each missed payment or would have to wait until they missed all payments (coul be SOL problem)
when does an acceleration occur?
most creditor notes contain acceleration provisiosn that allow the creditor to accelerate the loan if debtor misses a payment, without having to give notice.
-should not given otice if (1) K doesn't requirement notice and (2) debtor has opporutnity to reduce value of collateral. Risk may be too high

however, some courts require there be notification of acceleation for it to be valid
-creditor must take affirmative action to put the debtor on notice that it intends to exercise option to accelerate.

depends on jurisdiction
Why might acceleration not alway be in the creditor's best interst?
creditor may not want to go through the process.
-they may just want the payments back
-the could have a lot to lose - potential criminal liability if they repossess and lose during litigation or the loss of a good customer

it may be best for creditor to collect the missed payments and then allow the debtor to continue the loan
-credito would wnat to get signed affidavit that it can't be used as evidence of waiver in the futuer.
What can the creditor do if the debtor does not cure after creditor accelerates?
foreclosure (civil, notice of sale, private auction)

until sale occurs, debtor can redeem by paying the full balance of the loan.
How can creditor pull the plug?
First demand payment and declare default.

second send notice of acceleration

next, replevin action or self-help to get.

this is economic decision and business decisions - msut determien can they get more from repossessing and selling or continuing the acount
How does debtor overcome default?
to overcome the default, the debtor must cure.

cure: reversing a default by tendering payment. cure occrs where the receives receices the money (mailbox rule does not apply). This is pretty much the only option after defualt.

How much the debtor must pay depends on whether there is an acceleration clause.
-If there is not one, usually the missed payment and whatever penalities.
-if there is an acceleration clause, you would have to pay off the entire loan.
an unconditional offer of money or performance to satisfy a debt or obligation

It can be difficult to determine whether tender or acceleration occurs first (acceleration doesn't necessarily require notice)
relationship between acceleration and cure
a mortgage, prior to election of acceleration may tender the arrears due and thereby prevent acceleration.

default triggers a race:
-if acceleration is first, default can't be cure.
-if cure occurs first, obligation can't be accelerated
the voluntary relinquishment of a known right

In order to have a pure waiver, there must be some evidence of the creditor's intent to waive acceleration.

a notifcation that the creidtor is accelerating the loan does not constitute as a waiver becuase it shows the opposite intent.
waiver by estoppel
misleading the debtor into the honest and reasonable belief that the creditor intended waiver.

requires conduct of one party of such that it would lead another to honestly and reasonably believe that waiver was intended; and
reliance of that as to one's prejudice to the detriment.
good faith
honest in fact and the observance of commerially reaosnable standards of fair dealing

honesty in fact: subjective - what you really beleive in your head

reasonable commercial standards:objective - reasonable man

every contract governed by the UCC imposes obligation of good faith in performance and enforcement

can use bad-faith as a sheild, but not a sword
-bad-faith does not support an independent cause of action for failure to perform or enforce in good-faith
-can use as defense when creditor is exercisign rights against you
Why do many creditors work with debtor to file for BR?
because of the issues with waiver, waiver by estoppel, and good-faith, many creditors encourage debtors to file for BR and work with them to create a plan. Becuase the BR court blesses the transaction and gives their seal of approval, there areless issues with these problems
Defaults during BR
BR alters the creditor's ability and right to exercise state law remdieis at default. Depend on the debt, debtor may modify or reinstate with a cure.
reinstatement and cure in BR
if the debtor reinstates and cures, the original contract remains unaltered.

reinstatement - restores (de-accelerates) the loan to its pre-bankruptcy, undefaulted state. In order to restore the loan, debtr must fix whatever efault payments have already occured.

cure: debtor must fix by payment which may include missed interest payments

why cure?
-modification of mortgages on primary redisential property is generally prohibited
-the original contract may be advantageous
reinstatement and cure - ch 11
Ch. 11 plans timings determined by a judge as to what is reasonable under the circumstances.

Debtor may cure any default that has occured before or after the commencement of the BR case.
-courts have generall held that a cure must be in a lump sum at the effective date of the plan.
-future payments remain due at the time specified in original contract
-debtor must compensate creditor for paritcular kinds of damages or actual pecuniary losses.
-plan must not otherwise alter the legal, equityable, or contractual rights to which the claim holderis entitled.
reinstatement and cure - ch 13
Chapter 13 plan must be paid in 3-5 years.

A debtor may cure any default that occured before or after confirmation of the BR case within reasonable time and maintenance payments while the case is pending.
-the cure need not occur in one lump sum at the effective date, but it can't extend beyond the period of the plan.
-future payments remain due at the time specified in the original contract.
-courts must look to applicable non-BR law to determine the amount necessary to cure
-can't otherwise alter the lega, equitable, or contractual rights.

limit - debtor can't reinstate or cure if the last payment is due at a point in time that is before the final will be due on the plan.

more likely to use reinstatate and cure than modification ot deal with long-term secured obligationbecuase ch. 13 requires full payment of modified clims within the peirod of the plan. Most debtor can't pay their long-term oblgiation in such a short time.
Modification and BR
modification - propose new payment schedule on defaulted lon through BR process; thiscahgnes the payment terms of the original loan.

The minimum amount the detor must pay on modified secured claim is determined in two steps
-determine the amount of the secured claim allowed;
-formulate a schedule for payments that will have vlues, as of theeffective date of the plan not less than the amount allowed of the secured claim (tills formula)

Accepted method to meet this test is to offer payment of the amount of the allowed secured claim, along with interst at the market rate, from the effective date of the plan, in equal montly payments over the period of the plan
Chapter 11 modification
period of plan is any period fair and equitable

full payment of modified plan must be made within the period of the plan

debtor can't modify the loan of principal residence
chapter 13 modification
period of plan = 3-5 yers

full payment of modified plan must be made within the period of the plan

debtor can't modify the loan of a principle residence
-limited exception: can modify a loan, even if it is the principal residence, if the final payment is due before the last payment of the plan is due.
amortization schedule
to determine how much the debtor owes, add the arrearage(missed payments) and how much is due on the loanif the payments had not been miseed. You then plug this into an amortization schedule.
loan approval
debtor fills out loan applicatin, which seeks information about debtor and the business (including current balance sheets, income statements, and income tax returned)

once creditor receives the loan application, creditor orders credit report. The info is added to the system.

Based on the results and own review of application, creditor authorizes the loan.

The loan application is sent to branch manager, who has authority to approve large credit lines.

Debtor is alled and informed of approval.
loan documentation
creditor provides email copy of security agreement and the authorization to file financing statement. debtor signs authroization and discusses security agreement with lawyer.

creditor files financing statement and searches filing system to see if there are other creditors.

creditors visit site of collateral to document and looks at books and business records. If satisifed, the loan is ready for closing.

To complete the loan documentatino, the parties go through security agreement, sample form statement of transaction, the filed financing statement, and a personal guarantee. They then sign them.
floorpan agreement with manufacturer
a floor plan agreement provides that if the debtor finances purchase of a certian manufecturer's boat, that manufacturer will buy back the boat and the full invoice price if creditor has to repossess those boats.

Advantag - the debtor will not be liable for a deficiency judgement if the creditor reposses and forecloses on the collateral.
personal guarantee
personal guarantees, or suretyships, are an agreement that the debtor willbe personally liable for the debts of another person or company.

Two resons for requiring personal guarantees from the owenrsof their corporate borrowers:
-if borrower can't repay the loan, the owners might
-in the even of default, the lender will have the cooperation of the owners. Owner has incentive to avoid or minimize the jugement that eventually might be taken against them personally.
floor checking
creditor will need to continue checking the collateral to verify the continuing existence of the collateral and check its condition.

However, must follow rigid proceudres and make sure they count correctly.
the legal conclusion that a particular claim to a peice of collateral is better than another clam. That is, one party can claim value in the collateral before another party.

general rule: first to attach and perfect a security interest has priority (but there are some exceptions)

a lien with priority higher than another is referred to as the "senior" or "prior" lien.

Priorities in liens perfected in the UCC may not be altered by equitable doctrines (unjust enrichement) but the court suggested an equitable claim may be allowd where there is fraudulent conduct.
a lien that has a lower priority than another is referred to as the subordinary or junion lien.
some act which varies for different types of collateral that is legally deemed to give world notice of party's interest in the collateral (i.e. the process by which the security interst becomes effective against 3rd parties)

perfection can't occur without attachment having occured.

perfection and priority are two different things.
-must perfect security interst to gain priority.
-in large majority of cases, dates and times of the perfection will determine the priorities of the liens.
What are the different methods of perfection?



automoatic perfection

Method of perfection: filing
Unless otherwise provided, a security interest in art. 9 collateral must be perfected by filing

perfection can only occur by filing a financing statement in the correct filing system.
-if all three requirements are met, butthe officer refused to admit the financing statemnt, security interst is perfected against anyone, unless a person can show that they searched the filing and granted a security based on reliance of the absence of any other filing.

financing statement is not signed by debtor
-signing of security agreement automatically authorizes filing of financingstatement.
-if debtor has not yet signed a security agreement, debtor will sign an autheticated docuemnt that authorizes credtitor to file financign statmement listing "x" as collateral
perfection by possession
possession - law looks to the legal right, not just the physical fact, but neither is determinatibe of possession

Permissible: any kind of collateral with physical formbody
-goods, certified security (preferred), chattel paper (preferred), instruments (preferred)

Mandatory: cash

theory: possession gives notice.
-person who buys or lends against certain kinds of collaterl will look at the collaterl before lending against it. The collateral in the possesion of a security party will alert the searcher to the possible existence of a security interest

perfection by possession occurs where creditor or their agent is in possession of collateral. the debtor can't possess for creditor (can't be creditor's agent)
Perfection by control
control is possession for intangible property (deposit account and investment property)
control of deposit accounts
three ways to perfect by control:
(1) automatically occurs if deposity institution and secured creditor are the same institution.

(2) if creditor and deposit institution are not the same person:
(i) add secured creditor's name to account; or
(ii) enter into control agreement
-control agreement: tri-party agreement with secured creditor, debtor, and depository institution that says if bank receives notice of default, they are pre-authorized to dowaht the secured creditor says pertaining to the account.
control of investment property: directly held cerfiticated stock
stock evidenced by certificate directly owed and held by debtor.

-perfection occurs by delivering certificate to creditor and either:
(1) debtor endorses (signs on the back) the instrument over to the creditor' or;
(2) give back to corporation and have them issue a new certificate with the creditor's name on it.
control of investment property: uncertificated directly held stock
a stock that is not evidenced by certificate that is directed owed by the debtor.

perection occurs where the corporation or LLC changes the name on the books to the name o the creditor (considered to be delivery)
control of investment property: indirectly held stock
where a 3rd party owns the stock, but debtor owns an interset in the 3rd party

(1) if broker who has your security account is also secured creditor, then perfection happens automatically;
(2) if broker, secured creditor, and debtor enter into tri-party agreement where broker agrees to follow secured creditor's order without debtor's consent;
(3) have creditor's name added to the brokerage account
How does perfection by possession and control interplay with attachment?
if perfection is accomplished through possession or control, you will also have satisfied the third requirement for attachment.

In such a circumstance, when attachment occurs, perfection automatically occurs. Nothing must be done.
automatic perfection
Automatic Perfection occurs upon attachement if it is a purchase money security interst (PMSI) in consumer goods.

PMSI - security interst ithat secures either (1) the purchase price of the collateral or (2) laon made in order for the debtor to acquire the property
perfection by levy
the only way for unsecured creditor to perfect their udgement lien is to levy the property.
-if judgement creditor levies property after a perfected security interst has occured, there interst will be subordinate to taht perfected creditor's interst.

levy occurs by taking physically possession of the property, but also a posted notice saying "asset is levied" may be enough - depends on state law.
theory of the filing system
the goal is actual communication and notice of the existence of a lien from the holder to a person who is consdiering becoing a creditor for the same debtor.
filing system - UCC-1 state system
Financing statement will generally be filed in UCC-1 state system
-includes goods, accounts receivables.

in most states, the documetn will befiled with the secretary of state.

ucc records are self-purging. a filed financing statement only stays effective for 5 years. If you want it to last longer, you must file a continuane statement within 6 months of termination.
Filing system for patent
U.S. patent and trademark office

in patent context, ederal filing reuqirement fo the perfection of SI preempts state filing requirements
filing system for copyright
Copyright ofice

SI in copyright must be recorded in UC copyright Office to be perfected
filing system for royalty payments
To be safe, file in both the UCC system an the Copyright office.

There is contradicting case law.
-one case said SI in receivables generated by copyright may also be recorded in US copyright
-other case distingushes royalty payment from copyright.
filing system for trademark
filed in UCC system
filing system for aircrafts
filed with FAA to perfect
filing system for vehicles
filed with office of motor vehicles
-exception: if car is inventory, can perfect through UCC system
Searches in filing system
searchers can either personally search by visiting or online OR they msut request a search to be performed by filing office Problems with searches: search in wrong state, debtor changed name, debtor changed location, improperly rejected or indexed
practical application of filing
a creditor that wants to take SI should file first, search through the date of filing, and if search results show your client's filing to be the direct, disburse the loan immediately.

by searchingfirst, SI can be created in the interim. Additionally, if you search firs,t there is lag before SI shows up in the system (2 days but no practical way to enforce it)
requirements for financing statement
name of debtor

name of secured party

indication of collateral
how to describe debtor's name (registered organizations)
must use name on public record in which it was organized
-corporation: use name in Articles of Incorporation
-sole proprietorship: use owners name
-partnership names: name by which it is generally known in the community
-trade names: insufficient
how to describe debtors name (individual)
UCC requires the use of correct legal name of debtor.

states gereally have two alterantive:
-for debtor's with in-state drivers license, filing and searching is to be in the name of the debtor's driver license.
-filings are valid if made in debtor's correct legal name or in the driver license name
financing statement - name of debtor
even if the name is incorrect, it will be sufficient if it is not seriously misleading.

name is seriously misleading if it does not bring back results that includes the actual debtor.
-test: enter the correct name and apply the official search logic. Whatever is found is effective. Whatever is not is ineffective.
standard search logic for registered organizations
ending noise words (such as org., inc., etc.) are ignored if at the end [but not in the middle]

articles in the front are ignored (the)

puncutation marks and accents are disregarded.

no distinction between upper and lower case letter

all spaces disregarded
standard search logic for individuals
first initial and middle initial are equivalent of all anems that eing with the intials.

no middle name is equivalent to all middle names

spaces between letters in name are ignored

suffixed ignored

hyphenated names count as one.
financing statement- name of secured party
lender's name included if any questions about how the security agreement, including the scope of the description of the collateral, but there are no specific rules for the name of secured party.

can use trade name to describe secured party

missing or incorrect info does not invalidate the perfection
financing statement - collateral description
standard: any description that renders the collateral objectively determinable.

can use super generic description of collateral in financing statement; can be braoder than the description in security agreement
-description can be broader than security interset granted, but it can't be wrong (that would be seriously misleading)

purpose - put other creditors on notice that there could be security interst in that item.
goods that have become so related to real property that interst in them arises under real property law.

The UCC provides a defintion but it is non-uniform throughout the state.

You do not have to perfect a SI in a fixture before it is affixed. It can already be affixed (but small minority doesn't allow this)

note - can grant seucrity in fixture if consumer goods, but must be described specifically.
3 part fixture test
One of the following elements must exist:

-the thing has been annexed to the land;

-the thing that has been attached hasn't been permanentantly annexed, but does serve use on the land/building

-the parites intent for this to be permanent part of the real property.
What are the two methods to perfect a fixture?
File regulated UUC-1 financing statement in state system

file fixture filing
Perfection of fixture by financing statement
You filed like any other good, but problem is limited priority efect.

Creditor who files FS will outrank lien creditors (including BR trustee), but will not beat someone with (1) mortgage in the property with fixture; and (2) person who made fixture filing.
perfection of fixture by fixture filing
Fixture filing is a statement that is filed in different place and has more information
-extra information: indicate for fixture, attach legal description of property located, and if deabtor isn ot owned of real estate, name owner.

Must be filed where a mortgage on the real estate would be recorded (office of county where real estate is located)

the fixture filing must be perfected before the mortgage o the property is perfected to have priority over the mortgage.
-exception: PMSI has super-priority.
types of changes that can happen with collateral after inital filing?
debtor's name change, change in collateral use, change in collateral form
types of collateral changes:
type 0: the new use/form of collateral falls into UCC category that is already lists in the financing statement.

type 1: the new use/form of collateral is not listed in the financing statement, but it is perfected in the same manner (commonality of perfection method)

type 2: the new use/form of collateral is not listed in the financing statement and cannot be perfected in the same way as the original collateral.
perfection rule for change in debtors name
finanacing statement remains effective.

financing statement remains effective so long as the name change does not render the statement seriously misleading.

a seriously misleading name change creates a 4-month window.
-everything purchase in the 4-month window is perfected, but anything acquired after the period will be unperfected.
-amending the FS within the 4 months, filing is valid for all collateral and relates back to date of original filng
-amending the FS after the 4 month window, amendment is effective, but priority begins at the time of the amendment.
perfection rule for changes in use
type 0 change - FS remains effective & perfection remains

type 1 change - financing statement is effective and perfection remains

type 2 change - finacning statement ineffective. perfection lost immediately.
two questions to ask when change in form
under what circumstances and to what extend dose the seucrity interst remaind perfecte (1) against the original collateral and (2) as to the proceeds?
perfection rule for changes in form - original collateral
as to the original collateral, the SI remains perfected so long as the FS is still effective.
perfection rule for changes in form - proceeds
Generally, creditors have a perfected SI in the proceeds of original collateral for 20 days after the swap. But, there is a way for perfetion to last longer. YOu must look to the method that the proceeds were acquired - either through barter or through cash sale.

Note that if the perfection is lost after 20 days, the creditor can file an amendment, but it will not secured continuous perfection. His priority would begin at the time he filed the amendment or new financing statement.
perfection rule for changes in form - barter rule
type 0 change- perfection maintained

type 1 change - perfection maintains

type 2 change - perfection is lost after 20 days.
perfection rule for changes in form - cash rule
stays cash - perfection is maintained forever.

cash used to acquire asset:
-type 0: perfection maintained
-type 1: perfection lost after 20 days
-type 2: perfection lost after 20 days
What happens if debtor tries file financing statement for type 2 change in barter or cash and type 1 change of cash?
The creditor will be perfected at that time but is unable to get continuous perfection. his priority would begin at the time hefiled the amendment or new financing statement.
How do you know what state law applies?
generally, the location of the debtor determines which state laws applies.

Two exceptions:
-possesory security interst is goverend by the law of the state where the collateral is located.
-deposit account is filed under the state where the bank is located.
a person having an interest, other than a security interset or other lien, in the collateral, whether or not the person that is an obligor.
Where is the debtor located?
individual - principle place of residence

registered organization - whatever state in which the organization is filed is the state that governs perfection

unregistered organization - located where office is located; if mulitple, located where cheif executive officer is; if multiple, location where CEO is located
What happens if the debtor changes location/moved?
the creditor must re-file a new financing statement in the new governing jursidiction's filing office within 4 months of the move.

If the secured party files in the state within the 4 month period, SI maintains perfection back to the date of the original filing.

If there is no refiling in the 4 month period:
-in regard to (1) interim purchasers for value and (2) other secured parties, creditor loses its perfection retroactively
-in regard to other lien holders (bankruptcy trustees), creditor's perfection ends at the end of the four month period.
What happens if the debtor changes locations becuase there is a new debtor?
secured creditor has 1 year after transfer of the collateral to new debtor to perfect new security intrest.

if secured party re-files within the year of transfer, security interest maintains perfection back to the date of the original filing

If no refiling within a year:
-in regard to (1) interim purchasers for value and (2) other secured parties, creditor loses its perfection retroactively
-in regard to lien holders, creditor's perections ends at the end of the 1 year period.
What happens if there is a situation where there is both a name change and a change in location?
change in location rules wins.
relocation analysis
If there is a change in location:

1. is it because the debtor moved or because there is a new debtor?

2. Depending on which one, the secured creditor must maintian perfection by filing in the new place.

how long? 4 months if moved; 1 year if new debtor.

in either case, perfection is lost if time period ran out.

Who is the competiting party?
-if purchaser/secured party, that party wins.
-if lien holder, it depends.
When is priority an issue?
-multiple secured parties
-lien creditors
-buyers of things subject to security interest
-mortgages on real property and security interst in fixtures.
General rules for secured party against secured party
first in time first in right.
-creditor who is the first to effect or file is first in time; the creditor who simply files must be given a security interst at some point in time.

perfected beats unperfected

first to file (or perfect) wins between two unperfected security interst.
-implicit in the filing is that you would have to later attach.
secured v. secured: special rules
future advances: any future advances are secured and priorty relates back to the time of original filing. [provided the FS covers collateral, all adnvaes made by the secure paryt to debtor have priority as of the original date of filing; a single FS is sufficent to perfect any # of SI, to the limits of description of collateral in FS.]

after-acquired property: no deviation with respect to perfection as long as description of collateral in FS and SA is broad enough to cover AAP, then priority of AAP rlates back to the time of the original filing

Proceeds: if you filed or perfected in collateral and it turns to proceeds, your priority stays the same in the proceeds as it was in the original collateral.
Secured v. secured: transferor secured party
transferor's security interest has priority over transferee's security interst

The security interest "sticks" to the transferred collateral and so whoever has a security interest with the transferor primes the security interest in the transferee.
Secured v. secured special PMSI rules
General rule: first in time, first in right

PMSI in goods other than inventory has priority if the PMSI is perfected no later than 20 days after the debtor recevies possession of that collateral.
-if filing occurs after 20 days,no special rule. You rank as to everyone else to the date that you filed or perfected.

PMSI in inventory has priorty if the PMSI is perfected by the time the debtor receives possession and the PMSI creditor give sadvanced notice to the creditor already secured by the inventory.
-authenticated notice must describe the intentory and inform them of their PMSI. This notice is good for 5 years.
Secured v. secured deposit account
control v. other form of perfection = control wins
-comes up when there is SI in account and proceeds have been deposited into the account

Control v. control
-generally, whoever has control first wins
-exception: deposity bank control wins, except against second name on account (they win)
secured b. secured investment property
control v. other form of perfection = control wins
Secured v. secured - instrument
possession v other form of perfection = possessor wins if he acted in good faith and does not kow that taking possession violates the rights of the first secured creditor.

When are the requirments not met?
-knowledge of another SI is not enough
-must be aware of a speciic provision that prohibt this type of transaction
-for this reason, it is best for the possessor not to ask too many questions
secured v. secured - chattel paper
possession v other form of perfection = possessor wins so long as
(1) took in good fiath
(2) possessor had no koweldge he was violating rights of first creditor
(3) the second secured party must take the security interest in the ordinary course of his own business (but no one knows what this means
what is lien holder/lien creditor?
-creditor that has acquired lien on the property invovled by attachemnt, levy, or the like; or

-trusee in BR from the dale of the filing of the petition
lien creditor v. lien creditor
rankings between lien creditors is essnetially by time: first in time, first in right.

the first creditor to get their lien incpeted will will.

Inception occurs from the moment the sheriff seizes the propery, or with postingn notice of levy if property is too big

note - liens attach and perfect at the same time.
lien creditor v. secured creditor
generally, the first to perfect or incept has priority.

Exception: - even if inception has occured and a secured creditor's lien is not perfected, the secured party will win priority, where:
-a still un-attached, but otherwise perfected filed art. 9 interst will beat prior incepted lien provided that as some point attachment does occur.
-An already attached but unperfected PMSI will beat incepted lien provided that perfection occurs no later than 20 days after delivery of the thing.

Note - although a PMSI in consumer good is automatically perfected, the PMSI must be perfected by filing within the 20 days to have priority over an incepted lien.

-future advances of reolving line of credit - attachment has not yet occurd but there is authenticated SI and filed FS. Any future advanced retroactively perfect the si in preference of the secured creditor and the secured creidtor's claim will grow to whatever amount is drawn on the reloving line of credit
Buyers against secured creditors - general rule
Generally, if a debtor sells collaterl in which a secured party holds a security interst, then that security interset follows the collateral if (1) the secured party perfects before the collateral was sold or (2) perfection has no occured but the buy knows of the security interst
buyers against secured creditors - what are the exceptions?
Authorized disposition

Buyer in the ordinary course

garage sale exception
buyer v. secured - authorized disposition
a security interest will not continue if the secured party authorized the disposition free and clear of the security interst.

There must be (1) sale and (2) sale free and clear of the security interest

The authorization may be express of implied
buyer v. secured - buyer in the ordinary course
Idea - trying to protect ordinary consumers from paying property at the store and brining it home with security interst attaches

A security interst will not continue if the requirements for BOIC are satisfied:
-buyer must be in the ordinary course
-security interst must have been created by the buyer's seller (not the seller's sellter)
-buyer of goods that are not farm products
-the property must not be in the possession of the secured party at the time of the sale [this requires perfection by filing a financing statement and for inventory that is always the case]
When is buyer in the ordinary course?
new value must be given

transation must occur in the ordinary course of the seller's business [must be buying from soemone in the business of selling the sorts of things and buying of of seller's ordinary inventory] [watch out for special deals/unusual deals seller does not ususally do]

buyer must be in good faith.

buyer must not have notice they are buying things that violte the rights of the secured party [difficult to prove]

NOTE - does not apply to bulk purchases
buyer v. secured - garage sale exception
buyer takes ffee of automatically perfected PMSI if (1) sale of colalteral and (2) the collaeral is consumer goods in both the seler and buyers hands and (3) new value is given and (4) buyer does not know about the PMSI

If creditor is concerned, he should file a financing statement
mortgage v. secured party
This comes up where a fixture is subject to mortgage law and article 9.

Generally, whoever has the rights in the reap property (mortgage) is going to win.
mortgage v. secured party - exceptions
Creditor with an interest in the fixture that is perfected before the mortgage is put of record (filed).

PMSI in fixture can beat mortgage if the PMSI is perfected by fixture filing before affixed or 20 days after it is affixed (filing of mortgage does not matter).
-Exceptions: PMSI in fixture won't beat a construction mortgage [the mortgage must be used for construction of improvement on land, which can include the acquisition cost but not solely the acquisition cost]

Mortgagee consents/allows secured party.

If debtor has legal right to remove the fixture (covered by state property law), then secured creditor can prevail over mortgagee.
Lapse of SI
A filed financing statement is valid for five years (perfection does not affect attachment).

In order for the creditor to maintain continuous perfection, the secured party must file a continuance statement within 6 months of termination in the same filing system where he filed original financing statement. The continuance statement is effective on the termination date.
-If there is a lapse, and creditor does not file continuation statement within the 6-month period, generally, perfection is lost prospectively.
-However, termination is retroactive when there is a purchaser for value.

If the creditor files a continuation statement after the 6-month period, the creditor would be re-ranks form the date of filing.
-If another secured party of lien holder shows up in the interim, they will beat the secured party.
-But - the filing is not retroactive. It still only establishes loss of perfection in the gap.

No limitation for how many times you can file financing statement.
termination of SI
In order to terminate a security interest, creditor must file a termination statement (UCC-3).

Security interest must be terminated where:
-There is no obligation between the debtor that is secured by the debt anymore and no obligation to loan the debtor any more money (the relationship is over); or
-If the debtor never authorized filing of the financing statement.

^Debtor has incentive to get rid of the Financing statement. Although perfection has no effect, debtor may have trouble with future creditors and buyers if there is a financing statement on file.

Article 9 allows debtor to demand that creditor file a termination statement under these two situations.
-Creditor has an obligation to file a termination statement under the two situations provided authenticated demand is made by the debtor.
-BUT - most security agreements will require the debtor to bear the cost of filing.