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Part 3 – Disposing Personal Property Collateral When a Borrower Defaults Requires Compliance with UCC Article 9
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Part 3 – Disposing Personal Property Collateral When a Borrower Defaults Requires Compliance with UCC Article 9

Questions regarding Article 9 compliance are on the rise, as more lenders seek to recover non-real estate collateral to recoup some of the cash lost in commercial and consumer loan defaults.  As we’ve discussed in previous articles, secured lenders are in a better position than unsecured lenders, but they are required to comply with Article 9 of the Uniform Commercial Code (UCC) to correctly dispose of collateral securing a defaulted loan.  Failure to properly comply with Article 9 procedures could prevent a lender from recovering a loan deficiency after disposition of the collateral, or give another party grounds to bring an action for damages.

In this third installment in our Article 9 compliance series, we will discuss perhaps the most important frequently asked question about the Article 9 ‘timely notice’ requirement, how to self-test for compliance.

How Can I Be Assured That I Have Given Notice To All Required Recipients?

A creditor will be deemed to have complied with the notice requirement when both of the following conditions are satisfied:

(1)   Not later than 20 days or earlier than 30 days before the notification date, the creditor requested information[1] concerning financing statements indexed under the debtor’s name in the office where a financing statement against the debtor should have been filed related to the collateral as of ten days before the notification date (See 9-611(e)(1); and

(2)   Before the notification date, either:

  1. The creditor did not receive a response to the request for information, in which case the creditor is not required to give notice to the parties that would have been named in the response, or
  2. The creditor received a response to the request for information and sent an authenticated notification of disposition to each secured party or other lienholder named in that response whose financing statement covered the collateral at issue.

There is no duty to notify a secured party or lienholder who filed a financing statement covering the collateral at issue, unless the notifying creditor knows that the filing is against the debtor and knows the debtor’s identity. (See 9-605).

In other words, section 9-605 relieves a secured party from duties owed to a debtor or obligor, if the secured party does not know about the debtor or obligor. Similarly, it relieves a secured party from duties owed to a secured party or lienholder who has filed a financing statement against the debtor, if the secured party does not know about the debtor. For example, a secured party may be unaware that the original debtor has sold the collateral subject to the security interest and that the new owner has become the debtor. If so, the secured party owes no duty to the new owner (debtor) or to a secured party who has filed a financing statement against the new owner.  However, the code does not relieve the duty of the secured party if it has constructive notice as opposed to actual notice.

In our next installment, we will discuss other frequently asked questions about the notice requirement, including how to discover additional parties who must be notified and accepted methods for sending compliance to interested parties. 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] Said request must be made in a commercially reasonable manner.

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