Repossession of Collateral BOOK NOTES : The Importance of Possession Pending Foreclosure Who will have possession of collateral during period of time from debtor's default until equity of redemption is foreclosed. Party in possession probably will capture the use value of the collateral. Only the party in possession may have access to the property to evaluate it before it's sold, which confers advantage in bidding Creditor's gain of possession may interrupt debtor's use. By determining who is physically in a position to maintain/destroy the collateral, possession may determine whether/how collateral is preserved. Possession (or right to obtain possession) provides bargaining leverage. The Right to Possession Pending Foreclosure-- Personal Property Article 9 favors secured creditors. Unless otherwise agreed, 9-609 gives secured party the right to take possession immediately on default. Doesn't need to involve courts/public officials if secured party can get possession without breach of the peace. If debtor resists repossession, secured party must get court order and have sheriff take possession from debtor. Action for replevin- writ of replevin directs sheriff to take possession of property from defendant and give it to plaintiff. To obtain remedy: Secured creditor files civil action against debtor. . Creditor can move for order granting immediate temporary possession pending outcome of case. Most states, creditor must give notice to debtor. If at hearing creditor establishes that likely to prevail in action, court issues temporary writ of replevin. Usually conditioned on creditor's posting a bond to protect debtor in event that debtor ultimately prevails in replevin action. Debtor can regain possession by posting similar bond in favor of creditor. Once writ has been issued and possession of collateral transfered to secured creditor, most debtors have no reason to defend the replevin. Judgment entered in default. Creditor completes foreclosure by selling collateral in commercially reasonable manner. UCC 9-610(a),(b) The Article 9 Right to Self-Help Repossession O Exception to having to go through judicial procedure: creditor with Article 9 security interest in tangible personal property can bypass courts/sheriff
and do its own repossessing. 9-609: after default a secured party may take possession of collateral.
o Repossession "Repo" Agencies find item of collateral, take it from debtor and turn it over to secured creditor Duty to refrain from breach of the peace during repossession is nondelegable, making secured creditors liable for for consequences of illegal repossessions by independent contractors. o 9-609(a)(2): gives creditor option to leave "equipment" temporarily in possession of debtor but render it unusable. The Limits of Self-Help: Breach of the Peace o UcC permits self-help repossession only if secured creditor can repossess without breach of the peace. 9-609(b)(2). Most lawsuits turn on what constitutes breach of the peace. Self-Help Against Accounts as Collateral Self-help remedy to party holding security interest in accounts: 9-607: secured creditor who knows identity of the account debtors can send them written notices to pay directly to the secured creditor. . Account debtor who receives notice can discharge obligation only by paying secured party. 9-406(a). Account debtor who is concerned w