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Repossessions: 2.2.1 History of Article 9 and Its Amendments

Article 9 of the Uniform Commercial Code (UCC) was approved in 1962, along with the rest of the UCC, by the Uniform Law Commission (then called the National Conference of Commissioners on Uniform State Laws or NCCUSL) and the American Law Institute (ALI). It has undergone significant amendment twice, in 1972 and 1999 (when the 2001 amendments were finalized).

Repossessions: 2.2.2 Substantive Overview of UCC Article 9

UCC Article 9 is the fundamental law regulating security interests and repossession of personal property. Article 9 offers a framework for determining when the creditor has a valid security interest, when and how it can repossess and dispose of the collateral, and the rights of the creditor and debtor after the collateral’s disposition.

Repossessions: 2.2.3.2 Effective Date of Revised Article 9

The drafters of revised Article 9 proposed a delayed effective date of July 1, 2001, in order to give as many jurisdictions as possible the opportunity to enact it.51 Most states adopted this effective date, although a few delayed the effective date by several months to a year.52

Repossessions: 2.2.4.1 Generally

Article 9 of the Uniform Commercial Code (UCC) applies to any transaction, regardless of its form, that creates a security interest in personal property or fixtures by contract.58 “Security interest” is defined at UCC § 1-201(b)(35)59 as an interest in personal property or fixtures which secures payment or performance of an obligation.

Repossessions: 2.2.4.3.1 True leases and bailments

Despite its broad scope, there are certain specific transactions that UCC Article 9 does not cover. True leases,84 for example, do not fall within the definition of security interest in UCC § 1-201(b)(35), as set forth in UCC § 1-203.85 These true leases are governed by Article 2A. Nevertheless, many transactions that are described as leases will meet the definition of security interest.86

Repossessions: 2.2.4.3.2 Deposit accounts

A particularly important exclusion is deposit accounts in consumer transactions.88 When Article 9 was revised in 2001, its scope was expanded, and there were proposals to allow security interests in consumers’ bank accounts. These proposals would have allowed a creditor to insert boilerplate language into a contract to extend its security interest to any deposit account the consumer had.

Repossessions: 2.2.4.4 Consensual Liens Versus Statutory Liens

Article 9 applies to consensual security interests.111 It explicitly excludes liens, other than agricultural liens, given by statute or other rule of law for services or materials.112 The only part of Article 9 that applies to statutory liens is a set of rules for determining priority between statutory liens for services or materials and Article 9 security interests.113

Repossessions: 2.2.4.5.1 Introduction

UCC Article 9 applies only to interests in personal property and not to interests in real estate.115 Separate state realty laws regulate foreclosure on real property pursuant to a mortgage, deed of trust, or similar instrument.116 Some states have specific statutes governing security interests in realty-personalty hybrids, such as cooperative apartments.117

Repossessions: 2.2.4.5.2 Security interests in obligations secured by real estate

Although revised Article 9 does not apply to security interests in real estate, it does apply to security interests in mortgage notes and other obligations secured by real property.121 In other words, revised Article 9 does not govern the creation of security interests in real property (other than fixtures) but it provides certain rules for security interests in, and transfers of, those obligations. Thus, when a mortgage holder securitizes the loan, revised Article 9 establishes rules for recording and perfecting that transaction.

Repossessions: 2.2.4.5.3 When collateral includes both personalty and realty

Sometimes a single security agreement covers both personalty and realty. In this situation, UCC § 9-604 provides the creditor with two options upon the debtor’s default. The creditor can proceed against the personalty under UCC Article 9, or the creditor can proceed against both the realty and the personalty pursuant to state real estate law.125

Repossessions: 2.2.4.6 Security Interests Versus True Leases

Article 9 governs enforcement of security interests and Article 2A governs a lessor’s remedies upon default. Nevertheless, certain obligations denominated leases are governed by Article 9 because the structure of the lease is considered closer to a security interest than to a true lease.

Repossessions: 2.2.4.7 Consignments

The term consignment usually refers to an arrangement whereby an owner, while still retaining ownership of property, places it with a merchant for sale. Consignments are relatively unusual in consumer transactions but sometimes vehicle dealers and secondhand dealers sell on a consignment basis. Also, occasionally a consumer will consign property, such as a vehicle on which the consumer cannot afford payments, to a dealer for sale as a way of avoiding repossession.

Repossessions: 9.3.6.3 Acceleration and the Redemption Amount

The debtor should not assume that the creditor has accelerated the debt and that the entire unpaid balance must be paid to redeem the collateral. Even though the timing of acceleration is within the discretion of the creditor once a default has occurred, some creditors may postpone acceleration because they perceive an advantage in delaying the calculation of rebates. If the debt has not been accelerated, then a consumer wishing to redeem need only pay the delinquent payments plus the creditor’s expenses.112

Repossessions: 9.4.3.2.6 Consequences of debtor’s objection

The former version of Article 9 stated that, if the debtor objected, the creditor had to sell or otherwise dispose of the collateral pursuant to former UCC § 9-504.198 There is no similar explicit statement in revised Article 9. However, under revised Article 9, if the debtor has objected to strict foreclosure, the only other purpose for which the creditor can retain possession of the collateral is to dispose of it pursuant to UCC § 9-610.

Repossessions: 9.4.3.3 Notification of Other Parties

In addition to obtaining the debtor’s consent, the secured party must give notice of the proposed strict foreclosure to other parties who have liens or other claims on the collateral and have made their interests known by filing a financing statement, recording the interest on a certificate of title, or notifying the secured party.201 These parties must be given a twenty-day opportunity to object to the strict foreclosure proposal.202 They also have the right to object if the secured party n

Repossessions: 9.3.9 Waiver

The debtor’s redemption rights can be expanded by contract.133 However, the uniform version of Article 9 prohibits waiver of the right to redeem in consumer-goods transactions.134 In other transactions waiver is allowed, but only by an agreement entered into and signed or otherwise authenticated after default.135

Repossessions: 9.4.6 Good Faith and Deception in Strict Foreclosure

The potential for self-dealing and abuse is inherent in the strict foreclosure procedures.230 The creditor, who often is a dealer in the item sold, will be in a far better position than the debtor to recognize its worth. The creditor also has greater access to the information necessary to calculate the payoff amount. The creditor can seek to use this superior position to obtain the debtor’s acquiescence to strict foreclosure when the collateral is significantly more valuable than the debt.

Repossessions: 9.4.2 The 60% Rule: When Is Strict Foreclosure Allowed?

Strict foreclosure is not allowed if the debtor has paid sixty percent of the cash price in the case of a purchase-money security interest in consumer goods or sixty percent of the loan amount in the case of other security interests in consumer goods.151 Unless the debtor waives this right by signing or otherwise authenticating152 an agreement after default,153 the creditor must sell the collateral within ninety days of taking posses

Repossessions: 9.4.3.1 Overview

Assuming that strict foreclosure is allowed, there are two basic steps that must be taken to accomplish it: the debtor must consent,159 and certain other parties with an interest in the collateral must be notified and given an opportunity to object.160 There are likewise two ways for the debtor to consent: either by signing or otherwise authenticating an agreement, or by failing to object to a proposal sent by the creditor.161 The debtor’s co

Repossessions: 9.4.3.2.1 Overview; who must consent

The debtor may consent to strict foreclosure by either signing (or otherwise authenticating) an agreement, or by failing to object to a proposal sent by the secured party. The creditor need only obtain the consent of the “debtor,”167 defined as the person who owns the collateral.168 If a person puts up collateral for someone else’s debt, the creditor only needs the consent of the person who owns the collateral.