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Secured Transactions Assignment 5

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Secured Transactions Assignment 5. Article 9 Sale and Deficiency. Chapter 1: Creditors’ Remedies Under State Law. Assignment 1: Remedies of Unsecured Creditors Assignment 2: Foreclosure Assignment 3: Repossession Assignment 4: Judicial Sales Assignment 5: Article 9 Sales

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  1. Secured TransactionsAssignment 5 Article 9 Sale and Deficiency

  2. Chapter 1: Creditors’ Remedies Under State Law Assignment 1: Remedies of Unsecured Creditors Assignment 2: Foreclosure Assignment 3: Repossession Assignment 4: Judicial Sales Assignment 5: Article 9 Sales Assignment 7: Bankruptcy Sales

  3. Diagramming asset valuesand lien amounts $80K Lien $30K Deficiency $50K Value

  4. Diagramming asset valuesand lien amounts $100K Value $20K Equity $80K Lien

  5. Judicial Sales

  6. Judicial Sales Procedure: 1.Sell collateral to highest bidder

  7. Judicial Sales Procedure: 1.Sell collateral to highest bidder 2. Apply proceeds to the debt

  8. Judicial Sales Procedure: 1.Sell collateral to highest bidder 2. Apply proceeds to the debt 3. Return surplus to the debtor

  9. Judicial Sales Procedure: 1.Sell collateral to highest bidder 2. Apply proceeds to the debt 3. Return surplus to the debtor 4. Creditor can move for “deficiency”

  10. Judicial Sales Procedure: 1.Sell collateral to highest bidder 2. Apply proceeds to the debt 3. Return surplus to the debtor 4. Creditor can move for “deficiency” Reasoning 1. Property sells for “market (true) value”

  11. Judicial Sales Procedure: 1.Sell collateral to highest bidder 2. Apply proceeds to the debt 3. Return surplus to the debtor 4. Creditor can move for “deficiency” Reasoning 1. Property sells for “market (true) value” 2. Secured party receives full value of collateral (up to debt) and, with deficiency, full amount of debt

  12. Judicial Sales Procedure: 1.Sell collateral to highest bidder 2. Apply proceeds to the debt 3. Return surplus to the debtor 4. Creditor can move for “deficiency” Reasoning 1. Property sells for “market (true) value” 2. Secured party receives full value of collateral (up to debt) and, with deficiency, full amount of debt 3. Debtor pays no more than it owes (no “forfeiture”)

  13. Example 1 $100K Value $20K Equity $80K Lien

  14. Example 1 $100K Value $20K Equity • Sale is for $100K • $80 goes to secured • $20 goes to debtor • Debt is paid in full $80K Lien

  15. Example 1 $100K Value $20K Equity • Sale is for $100K • $80 goes to secured $80K Lien

  16. Example 1 $100K Value $20K Equity • Sale is for $100K • $80 goes to secured • $20 goes to debtor $80K Lien

  17. Example 1 $100K Value $20K Equity • Sale is for $100K • $80 goes to secured • $20 goes to debtor • Debt is paid in full $80K Lien

  18. Example 2 $80K Lien $30K Deficiency $50K Value

  19. Example 2 • Sale is for $50K $80K Lien $30K Deficiency $50K Value

  20. Example 2 • Sale is for $50K • $50K goes to secured $80K Lien $30K Deficiency $50K Value

  21. Example 2 • Sale is for $50K • $50K goes to secured • Creditor sues for $30K deficiency $80K Lien $30K Deficiency $50K Value

  22. Example 2 • Sale is for $50K • $50K goes to secured • Creditor sues for $30K deficiency • Debt paid in full? $80K Lien $30K Deficiency $50K Value

  23. Credit Bidding Assume the debtor owes a $100K secured debt Secured Party $100K secured debt Debtor

  24. Credit Bidding Assume the debtor owes a $100K secured debt The Secured Party forecloses and the court orders a sale Secured Party $100K secured debt Debtor

  25. Credit Bidding Assume the debtor owes a $100K secured debt The Secured Party forecloses and the court orders a sale Secured Party $100K secured debt Sheriff Buyer $100K Collateral 1. Sheriff sells the collateral to the highest bidder

  26. Credit Bidding Assume the debtor owes a $100K secured debt The Secured Party forecloses and the court orders a sale Secured Party $100K secured debt Sheriff Buyer $100K Collateral 1. Sheriff sells the collateral to the highest bidder 2. Sheriff pays proceeds to the secured party.

  27. Credit Bidding Assume the debtor owes a $100K secured debt The Secured Party forecloses and the court orders a sale Secured Party Sheriff Buyer $100K Collateral 1. Sheriff sells the collateral to the highest bidder 2. Sheriff pays proceeds to the secured party. 3. Payment reduces the amount owing.

  28. Credit Bidding If the secured party is the Buyer, the money would go in a circle. So the law excuses both payments $100K Sheriff Secured Party $100K Collateral

  29. Credit Bidding If the secured party is the Buyer, the money would go in a circle. So the law excuses both payments Sheriff Secured Party Collateral

  30. Credit Bidding If the secured party is the Buyer, the money would go in a circle. So the law excuses both payments Sheriff Secured Party “$100K” Secured Party bids “$100K”

  31. Credit Bidding If the secured party is the Buyer, the money would go in a circle. So the law excuses both payments Sheriff Secured Party Collateral Secured Party bids “$100K” Sheriff transfers collateral

  32. Credit Bidding If the secured party is the Buyer, the money would go in a circle. So the law excuses both payments Debtor Secured Party zero Secured Party bids “$100K” Sheriff transfers collateral Debt is reduced by amount of the bid

  33. Judicial sale procedure problems

  34. Judicial sale procedure problems

  35. Judicial sale procedure problems

  36. Judicial sale procedure problems

  37. Judicial sale procedure problems

  38. Judicial sale procedure problems

  39. Typical bidding dynamics 1. Some sales are for substantial bargains prices; debtor suffers forfeiture 2. Some creditors bid without determining value; losing deficiencies, misleading others 3. Sales become a strategy game