198 - Secured-Creditor-Checklist-240x160The Uniform Commercial Code (or UCC) was introduced in the 1950s with the goal of harmonizing state laws pertaining to commercial transactions of personal property. Despite that goal, each state still maintains its own version of the code, which will vary slightly from jurisdiction to jurisdiction.

Article 9 is a specific component of the code that governs security interests in personal property as collateral to secure a debt. This pertains to how a security interest is created and how to give priority when multiple claims to the same collateral occur.

When a debtor defaults on its obligation, the creditor may repossess and dispose of the collateral. A creditor can sell collateral in a public auction or private sale as long as notice is given and the disposition is commercially reasonable.

However, there are a few rules that the creditor must adhere to, so the following checklist can function as a general guide for a sale, but it should not replace the counsel of an attorney in your jurisdiction:

  • §9-611 Before disposition, creditor must send notice to:
    Secondary obligors (guarantors)
    Secondary secured parties (if an authenticated claim is given to the creditor)
  • §9-612 Notice must be sent in a timely manner; a reasonable time is ten or more days before the earliest time of disposition.
  • § 9-613 The notice must include:
     Description of debtor and secured party
     Description of the collateral
     The method of intended disposition
     Statement that debtor is entitled to an “explanation” if there are unpaid debts/charges
     Time and place of public sale or date of other dispositions
     Description of liability for deficiency
  • §9-627(b) A disposition is commercially reasonable if it is made:
     In the usual manner in the recognized market
     At the current price in the recognized market at the time of disposition; or
     Otherwise in conformity with reasonable practices among dealers in the type of property at the disposition.
  • §9-627(a) A disposition is still commercially reasonable even if the amount actually obtained differs from what could have been obtained at a different time or with a different method.
  • §9-615(a) If collateral is sold, proceeds are given in this order:
     Cost of the sale and repossession, administrative costs
     Principle and interest of the secured debt
     If there is surplus, to the secondary secured parties (if any)
     If there is still surplus, debtor will receive remaining funds
     If there is deficiency, the obligor is liable
     If debtor does not pay, creditor may sue to recover after giving debtor credit for sums received upon sale
  • §9-610 A secured party may purchase the collateral at the sale.
     For a public sale, there are no restrictions.
     For a private sale, the collateral must be of a kind that is customarily sold on a recognized market or the subject of widely distributed standard price quotations.