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Repossessions: 9.4.3.2.2 Consenting by authenticating an agreement

The first of the two methods by which the debtor may consent to strict foreclosure is by agreeing to the terms of the acceptance in a record signed or otherwise authenticated after default.169 The agreement must include the “terms of acceptance,”170 which must at least include a statement that the creditor is giving up its right to a deficiency.171 The former version of Article 9 did not explicitly authorize agreements for strict foreclosure,

Repossessions: 9.4.3.2.4 Timing requirements and possession of the collateral

The debtor’s consent—whether obtained by agreement or by silence after receipt of a proposal—must occur after default.194 If the collateral is consumer goods, there is an additional requirement: the collateral cannot be in the possession of the debtor when the debtor consents to strict foreclosure.195 The official comments do not explain the rationale behind this restriction, but it is similar to the requirement that the debtor’s consent be obtained only after default in that it prohibits th

Repossessions: 9.4.3.2.5 Should the debtor object?

Debtors should object to strict foreclosure if they believe that the collateral can be sold for more than the sum of the amount remaining on the obligation and the creditor’s expenses of repossessing, reconditioning, and selling the collateral. In other words, debtors should object if a surplus would result. If the debtor fails to object, the debtor loses the right to receive the surplus from the sale of the collateral.197 Debtors should also object if they want to reinstate the obligation or redeem the collateral.

Repossessions: 9.3.6.4 Multiple Debts; Multiple Items of Collateral

When the collateral is security for more than one obligation, the debtor may have to tender the amount due on all obligations in default in order to redeem the item.117 This commonly occurs when collateral is purchased under a security agreement covering future advances and the debtor is also in default on the future advance.118 Some state laws allow the debtor to redeem individual items, however.119

Repossessions: 9.3.7 Tender

Section 9-623(b) requires that the consumer “tender” the redemption amount. The mechanics of tendering the redemption amount under the UCC may be controlled by common law tender requirements.120 Under the common law, a mere offer to pay is not enough.

Repossessions: 9.4.5 Partial Strict Foreclosure

Revised Article 9 departs from the previous version by allowing creditors to accept collateral in partial satisfaction of the debt. Under this procedure, termed partial strict foreclosure, the creditor can retake and keep the collateral but treat it as only a partial credit toward the debt, leaving a deficiency still owing. Just as is true when the creditor sells the collateral to an alter ego, partial strict foreclosure raises the prospect of self-dealing to the detriment of the debtor.

Repossessions: 9.4.1 Deficiency Precluded

Except when the debtor has already paid off a substantial portion of the loan139 or when prohibited by state law,140 the creditor may propose to retain repossessed collateral in satisfaction of the obligation.

Repossessions: 9.5 Judicial Sale of Collateral

Although not frequently encountered in consumer transactions, there are circumstances in which repossessed goods may be disposed of by judicial sale. For example, a creditor may go to court to seek a declaration of default or to obtain possession of collateral, and then a judicial sale of the collateral.236

Repossessions: 9.6.1 Introduction

Prior to or immediately after repossession, it will often be to the advantage of the debtor to arrange a buyer for the collateral. A private buyer is likely to pay more than can be obtained through an auction or other wholesale disposition, the option a creditor is most likely to use.

Repossessions: 9.6.2 Creditor’s Involvement in Debtor’s Sale May Subject the Sale to Article 9 Requirements

A creditor who, without a repossession, requires a defaulting debtor to work with it to sell the collateral is deemed to have disposed of the collateral itself.245 This conclusion is consistent with UCC § 9-610(a), which says that a secured party may sell or otherwise dispose of collateral “after default,” without specifying that the creditor must first take possession of the property.

Repossessions: 8.1.1 Relevance of Bankruptcy to Repossessions

Bankruptcy can be an important tool for dealing with repossessions and monetary obligations to secured creditors. Not only does a bankruptcy filing create an automatic stay that will stop a repossession and other collection activities from going forward, but also it may allow a debtor to obtain the return of property which has already been seized.

Repossessions: 14.3.6.2 RTO Tactics for Gaining Entry into a Consumer’s Home

The breach of the peace standard poses problems for RTO companies who must obtain the consumer’s permission to seize the goods. One RTO tactic is the “switch-out.” An RTO representative tells the customer that the appliance is being picked up for necessary repairs or maintenance or is being upgraded, when in fact it is being repossessed.

Repossessions: 14.3.6.3 Principal’s Liability for Breaches of the Peace

When faced with an incident of wrongful repossession, many RTO dealers will attempt to accuse their employee of unforeseen misconduct. While most RTO companies have written policies that prohibit the use of force during repossession, it should be possible in most cases to prove that the employer is liable because it knew or should have known that force, threats of force, and other illegal behaviors are commonly used and approved during repossessions.

Repossessions: 14.3.6.4 Potential Tort and UDAP Claims

Unauthorized entry and other breaches of the peace may give rise to a tort claim, which may allow punitive damages.357 The RTO company’s breach of a statutory duty may be a tort,358 a breach of the peace is a tort,359 and the seizure may amount to conversion because seizure is only authorized if there is no breach of the peace.

Repossessions: 14.3.6.6 Application of the Servicemembers Civil Relief Act and State Counterparts

The Servicemembers Civil Relief Act prohibits RTO companies from using self-help to retake the leased items if a servicemember buyer paid a deposit or installment prior to entering active duty.365 The rental company has the right to seek a court order to retake the goods, but the Act has various protections for servicemembers in litigation.366 Many states have similar or broader laws protecting servicemembers.367

Repossessions: 14.3.6.7 Bankruptcy Stay

When a debtor files bankruptcy, the automatic stay prevents an RTO company from retaking the rented items.368 A creditor that repossesses the property in violation of the automatic stay may face actual and punitive damages.369

Repossessions: 14.3.6.8 Discrimination

There is some evidence that RTO dealers treat delinquent customers differently based on their race.370 African-American customers may experience more rapid repossession and may be less likely to have late fees waived than white customers.371 The Equal Credit Opportunity Act (ECOA) arguably applies to RTO transactions.372 If so, RTO dealers cannot treat customers differently post-default based on prohibited grounds.

Repossessions: 14.3.7 Consumer’s Right of Reinstatement

Article 2A does not provide for a right to cure or to reinstate, but RTO statutes in effect in most states provide a right to reinstate.376 A consumer might not want to reinstate an RTO contract because the contract so often is a bad deal. In addition, the right to reinstate can be viewed as just a gimmick to allow RTO companies to assess additional late charges.

Repossessions: 14.3.8 RTO Company and Consumer Liability After Repossession

Once the RTO good is repossessed, the RTO firm retains the good, and most likely rents the same appliance to a new customer, perhaps on the same rental terms. The question then arises as to what liability the consumer has to the RTO company and whether the RTO company which has kept the consumer’s built-up equity has to return anything to the consumer. If Article 9 applies, such liabilities are examined in , supra. This subsection assumes Article 9 does not apply.