How a creditor can properly go about disposing of personal property held as collateral is a hot topic right now for lenders seeking to recoup cash lost in commercial and consumer loan defaults. As we continue our series dealing with frequently asked questions concerning Article 9 compliance, we will discuss ways a lender can identify and locate parties who should be notified and how notice should be sent.
How Do I Find Parties To Notify?
Creditors seeking to dispose of non-real estate collateral should exercise due diligence by searching for all parties entitled to notice. That means creditors should request information from agencies where Financing Statements were supposed to have been filed under revised Article 9, which became effective July 1, 2001.
Under revised Article 9, Financing Statements may have been filed as follows:
(a) If the Debtor is a Corporation, in the State of Incorporation.
(b) If the Debtor is an individual, in the State of the individual’s principal residence
(c) If the Debtor is an organization, in the State of its place of business. If the Debtor has more than one place of business, in the State where it has its chief executive office. (See 9-307).
How Must I Send Notice?
Revised Article 9 requires notice to be sent in a manner reasonably calculated to result in timely delivery of the notice to the recipient. Under Section 9-102(74), “send” is defined as:
(a) to deposit in the mail, deliver for transmission, or transmit by any other usual means of communication, with postage or cost of transmission provided for, addressed to any address reasonable under the circumstances; or,
(b) to cause the record or notification to be received within the time that it would have been received if properly sent under paragraph (a).
This definition seems to leave open the possibility of sending notification by fax, email or other devise, if and when that is or becomes the “usual means of communication.” For now, it is recommended that, at the very least, notice be sent by regular mail, postage prepaid. There is no requirement that notice be certified or registered, but further precautionary methods are encouraged, as well as maintaining documentation of the dispatch date and method.
Where Should I Send Notice?
Revised Article 9 does not require notice to be sent to any specific location, just that it be sent to an address reasonable under the circumstances. Absent a creditor being notified by an interested party of a requested address for delivery of notice, a creditor should send notice to the debtor at his or her address shown in the financing statement or security agreement. If no address is requested by an interested party, or shown in the financing statement or security agreement, then notice should be sent to the interested party’s last known address. (See Old Article 9, Section 9-504(3).)
In our next installment, we will discuss the “Commercially Reasonable” standard, as it relates to the disposition of non-real estate collateral under UCC Article 9. 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.
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