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Part 2 – Disposing of Personal Property Collateral When a Borrower Defaults Requires Compliance with UCC Article 9
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Part 2 – Disposing of Personal Property Collateral When a Borrower Defaults Requires Compliance with UCC Article 9

In our current economic climate, many lenders are seeking to recover non-real estate collateral to recoup some of the cash lost to commercial and consumer loan defaults.  While secured lenders are in a better position than unsecured lenders, they are required to comply with Article 9 of the Uniform Commercial Code (UCC) to correctly dispose of the collateral.  Failure to properly comply with Article 9 procedures could prevent the recovery of a loan deficiency after disposition of the collateral, or give another party grounds to bring an action for damages.

In this second installment in our Article 9 compliance series, we will discuss frequently asked questions about the Article 9 ‘timely notice’ requirement, including what information the notice should contain, whether the notice must be executed, and whether an interested party can waive notice.

What Information Should the Notice Contain?

UCC Article 9 includes approved forms in the body of the law.  The forms provide a “safe harbor,” so use of the approved forms is highly recommended. (See 9-613) If properly completed, the approved forms will include:

(a)    The name of the debtor and the secured party,

(b)   A description of the collateral that is the subject of the intended disposition,

(c)    The method of intended disposition,

(d)   A statement that the debtor is entitled to an accounting of the unpaid indebtedness and the cost, if any, for an accounting, and

(e)    The time and place of a public disposition or the time after which any other disposition is to be made;

Must the Notice Be Executed by the Lender?

The secured party must ‘authenticate’ the notice, which means that the lender must do one of the following:  

  1. The secured party or his authorized representative must sign the notice; or
  2. The secured party may execute or otherwise adopt a symbol or encryption, or similarly process a notice in whole or in part, with the present intent to identify the authenticating person and adopt or accept the notice.

The second alternative above is primarily for use with electronic notification and therefore, the first alternative is the preferred method of executing a notice of disposition of collateral. In other words, the notice should be signed by an authorized representative of the secured creditor or its attorney and, if possible, placed on company or firm letterhead.  See 9-102(a)(7), 9-611(a)(1)(C).

Can an Interested Party Waive Notice?

The general rule is that a debtor, obligor, or secured party may not waive his right to notice with respect to disposition of collateral. See 9-602(7).  However, under 9-624(a), a debtor or secondary obligor may waive the right to notice of disposition of collateral by agreement, if the agreement to waive notice was entered into and authenticated after default[1].

In our next installment, we will discuss what is arguably the most important frequently asked question about the notice requirement, that is, how to self-test for compliance with the UCC Article 9 notice requirements. Check back soon to learn more, or call us and let our experienced attorneys guide you through the process of recovering and disposing of non-real estate collateral.

The attorneys at Glass & Goldberg provide high quality, cost-effective legal services and advice for clients in all aspects of business litigation and transactional law.  Call us at (818) 888-2220, email us at info@glassgoldberg.com, or visit us on the web at www.glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

[1] Note that in some states, no Waiver is valid as to consumer goods, except in consideration of a waiver by the Secured Party of the right to a deficiency pursuant to UCC Article 9-629.

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