Secured Transactions Assignment 5

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