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Repossessions: 12.2.2.2.2 Other state law restrictions

Non-UCC state laws may also prevent creditors from cumulatively or simultaneously exercising their remedies. The UCC provision permitting the simultaneous exercise of remedies “does not override any non-UCC law, including the law of tort and statutes regulating collection of debts under which the simultaneous exercise of remedies in a particular case constitutes abusive behavior or harassment, giving rise to liability.”30

Repossessions: 12.2.2.2.3 Restrictions against double recovery

Even if there are no statutory restrictions against simultaneously repossessing the collateral and bringing suit, obtaining a judgment on the debt while holding the collateral may violate state rules against double recovery. If the creditor seeks judgment on the debt while still holding the collateral, it may be unable to produce satisfactory proof of the amount owed, thereby giving the court a basis to dismiss the suit.33

Repossessions: 12.3.1 Overview

The creditor has no right to seek a deficiency if the consumer at the time of the deficiency claim has completely satisfied the underlying obligation. Satisfaction can occur in a number of ways. The consumer may have paid the obligation in full, or may have purchased credit insurance through the creditor that should satisfy the obligation.43

Repossessions: 12.4.8 Has the Creditor Made an Election?

When an anti-deficiency statute forces the creditor to choose between retaining the collateral or seeking a money judgment, the question can arise whether the creditor’s actions should be treated as retaining the collateral.133 What if, after repossession, the creditor changes its mind, and decides not to retain the collateral?

Repossessions: 12.4.9 Remedies Under Anti-Deficiency Judgment Statutes

The obvious remedy under a state anti-deficiency judgment statute is preclusion of the deficiency judgment. Seeking a deficiency judgment contrary to the statute should also be a violation of the state unfair and deceptive practices (UDAP) statute.136 The advantages of a UDAP claim include a clear affirmative cause of action in all states, statutory damages or multiple damages in many states, and the potential of recovering attorney fees in most states.

Repossessions: 12.5.1 Overview

The UCC gives a secured party the option of strict foreclosure. A creditor that selects this option keeps the collateral in full satisfaction of the debt in lieu of selling it and seeking a deficiency. The procedures by which the creditor can initiate a strict foreclosure are discussed in , supra.

Repossessions: 12.5.2 Constructive Strict Foreclosure Under Former Article 9

Under former Article 9, many courts found that a creditor’s actions in using or discarding repossessed collateral, retaining it too long, or selling it to itself, amounted to strict foreclosure even though the creditor never sent a strict foreclosure proposal to the debtor or otherwise indicated an intent to select this option.138 In these circumstances, courts forced the creditor to retain the collateral in full satisfaction of the obligation, with no right to seek a deficiency.

Repossessions: 12.5.3 Overview of Constructive Strict Foreclosure Under Revised Article 9

Revised Article 9 undercuts the constructive strict foreclosure doctrine by providing that a “purported or apparent acceptance of collateral under [U.C.C. § 9-620] is ineffective unless” the secured party has gone through one of two procedures. The secured party must either have sent a proposal to the debtor for acceptance of the collateral in satisfaction of the debt (the debtor’s non-response is considered consent), or have obtained the debtor’s signature (or “authentication”) on an agreement to that effect.141

Repossessions: 12.5.5 Wrongful Use of Collateral

A creditor’s wrongful use of the collateral after repossession may also be a constructive strict foreclosure. For example, in one case under the previous version of Article 9, the creditor repossessed a truck, used it for his own purposes for four months, and then sued for the debt. The Alaska Supreme Court cited the creditor’s use of the truck as one of the factors persuading it that a constructive strict foreclosure had occurred.149

Repossessions: 12.5.6 Abandoning Collateral As Worthless

Destruction of the collateral while in the possession or constructive possession of the creditor also resulted in strict foreclosure under the previous version of Article 9, preventing the creditor from seeking a deficiency or suing on the underlying debt.155 Courts so holding reasoned that, when the creditor scraps the collateral as worthless with no notice to the debtor, the debtor does not have a chance to appraise the worth of the property and, by its actions in destroying the collateral, the creditor has elected to retain the property.

Repossessions: 12.5.7 Delay in Sale of Collateral

If the creditor holds on to the collateral too long before selling it, a number of courts found under former Article 9 that the creditor’s slow disposition amounted to a strict foreclosure.160 These courts treated the collateral as if it had been retained by the creditor, whether or not the property was subsequently sold.

Repossessions: 12.5.8 Absolute Bar As an Alternative Theory

Even if a court holds that constructive strict foreclosure is not available as a remedy, it can reach the same result if it adopts the rule that a creditor is absolutely barred from recovering a deficiency judgment if it violates Article 9. Many courts reached this conclusion under the former version of Article 9, and the uniform version of revised Article 9 leaves them free to continue to do so in consumer transactions.167

Repossessions: 12.5.9.1 Generally

Constructive strict foreclosure issues also arise when a creditor leads the consumer to believe that return of the collateral will satisfy the debt, but then reneges. If the creditor did not go through the Article 9 strict foreclosure procedures, it may argue that strict foreclosure cannot be imposed on it.

Repossessions: 12.5.9.2 Estoppel

The revised version of Article 9 preserves common law and equitable remedies such as estoppel when a secured party holds repossessed collateral for an unreasonably long time.171 These causes of action may provide a remedy similar to constructive strict foreclosure.

The essential elements of equitable estoppel are:

Repossessions: 12.5.9.3 Waiver

The related doctrine of waiver is the intentional relinquishment of a known right, or conduct inconsistent with asserting the right.179 Most courts hold that no consideration is necessary for a waiver to be effective.180 Waiver can be implied from conduct that clearly manifests an intent to waive the right.181 Even conduct that less clearly manifests an intentional waiver can constitute a waiver if it reasonably leads the other party to rely on it

Repossessions: 12.5.9.4 Accord and Satisfaction

Under the common law theory of accord and satisfaction, if a debtor surrenders property to a secured creditor with the understanding, either express or implied, that it is in satisfaction of the creditor’s claim, and the creditor accepts and retains it, accord and satisfaction may result186 and the creditor may be barred from seeking a deficiency.

Repossessions: 12.5.9.5 Rescission and Satisfaction

Another, somewhat obscure, traditional common law theory that may apply in a case in which a purchaser returns secured property, or it is repossessed and retained by the secured party, is rescission and satisfaction.199 At common law, a seller under a conditional sales contract, or the seller’s assignee, who repossessed secured property after a default but failed to sell the property within a reasonable time as required by statute or the contract, and who used the property for its own personal use, was in some cases deemed to have rescinded o

Repossessions: 12.6.1.2 Must the Consumer Place the Secured Party’s Compliance with Article 9 in Issue?

In non-consumer transactions revised Article 9 places the burden of proof on the secured party only if the debtor places the secured party’s compliance in issue.220 About a dozen states have adopted non-uniform amendments that apply this provision to consumer transactions as well.221 Some uniform states also follow this rule.222 In these states consumer attorneys should, whenever appropriate, raise commercial unreasonableness in the answer and forc

Repossessions: 12.6.1.4 Impact of Defective Disposition on Right to Deficiency

Jurisdictions differ as to the debtor’s remedy when the creditor fails to prove a sale commercially reasonable. No matter the jurisdiction, a creditor’s UCC violations will substantially reduce or even eliminate the creditor’s recovery, and may result in a positive award for the debtor, but jurisdictions differ as to the method of adjusting the sought deficiency because of the UCC violations.

Repossessions: 12.6.2.1 States Adopting the Absolute Bar Rule

The absolute bar rule holds that the creditor’s compliance with Code disposition provisions is a condition precedent to the right to bring a deficiency action. A commercially unreasonable sale or defective notice of sale absolutely bars a deficiency.

Repossessions: 12.3.2 Payment to Assignee

Secured obligations are often transferred from one entity to another. For example, in a typical installment sale the seller is the original creditor, and then assigns the contract to a financing entity. If the transaction is securitized, as many consumer transactions are today, the obligation may be transferred to a trust or special purpose vehicle. Sometimes the obligation will be transferred multiple times, from one trust to another.