Secured Transactions Assignment 2

1
Secured TransactionsAssignment 2

• Security and Foreclosure

2
Chapter 1 Creditors Remedies Under State Law

• Assignment 1 Remedies of Unsecured Creditors
• Assignments 2-5 Remedies of Secured Creditors
• Assignment 2 Security and Foreclosure
• 1. What is a security interest?
• 2. How does the secured creditor foreclose?

3
Chapter 1 Creditors Remedies Under State Law

• Assignment 1 Remedies of Unsecured Creditors
• Assignments 2-5 Remedies of Secured Creditors
• Assignment 2 Security and Foreclosure
• 1. What is a security interest?
• 2. How does the secured creditor foreclose?

4
Chapter 1 Creditors Remedies Under State Law

• Assignment 1 Remedies of Unsecured Creditors
• Assignments 2-5 Remedies of Secured Creditors
• Assignment 2 Security and Foreclosure
• 1. What is a security interest?
• 2. How does the secured creditor foreclose?

5
Chapter 1 Creditors Remedies Under State Law

• Assignment 1 Remedies of Unsecured Creditors
• Assignments 2-5 Remedies of Secured Creditors
• Assignment 2 Security and Foreclosure
• 1. What is a security interest?

6
Chapter 1 Creditors Remedies Under State Law

• Assignment 1 Remedies of Unsecured Creditors
• Assignments 2-5 Remedies of Secured Creditors
• Assignment 2 Security and Foreclosure
• 1. What is a security interest?
• 2. How does the secured creditor foreclose?

7
Basic concepts

• Security interest An interest in property
  contingent on the non-payment of a debt.
• Transactions fitting that definition are security
  interests
• Even though the documents show an absolute
  transfer
• Example deed absolute
• Example bank account in secured creditors
  name
• Even though the parties dont realize they
  created a security interest
• Even though the parties didnt intend the
  effects of security
• Regardless of who has possession (But
  2-401(1)?)
• UCC 9-109(a)(1) This article applies to a
  transaction, regardless of its form, that creates
  a security interest in personal property or
  fixtures by contract.

8
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

9
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

10
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

Example 1 A 50,000 loan secured by Blackacre
50,000 loan
Secured
Debtor
Mortgage
Blackacre
11
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

Example 1 A 50,000 loan secured by Blackacre
50,000 loan
Secured
Debtor
Mortgage
Blackacre
3. Debtor owes a debt (50,000)
12
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

Example 1 A 50,000 loan secured by Blackacre
50,000 loan
Secured
Debtor
Mortgage
Blackacre
3. Debtor owes a debt (50,000) 1. The mortgage
(right to force sale) is interest in Blackacre
13
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

Example 1 A 50,000 loan secured by Blackacre
50,000 loan
Secured
Debtor
Mortgage
Blackacre
3. Debtor owes a debt (50,000) 1. The mortgage
(right to force sale) is interest in Blackacre 2.
The right is contingent on nonpayment (if Debtor
pays, Secured has no right in Blackacre).
14
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

Example 1 A 50,000 loan secured by Blackacre
50,000 loan
Secured
Debtor
Mortgage
Blackacre
3. Debtor owes a debt (50,000) 1. The mortgage
(right to force sale) is interest in Blackacre 2.
The right is contingent on nonpayment (if Debtor
pays, Secured has no right in Blackacre). This is
a security interest.
15
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

Example 2 Debtor agrees that if it fails to pay
rent when due, Secured will become the owner of
Debtors patent.
Lease of real property
Secured
Debtor
Obligation to pay rent
Patent
16
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

Example 2 Debtor agrees that if it fails to pay
rent when due, Secured will become the owner of
Debtors patent.
Lease of real property
Secured
Debtor
Obligation to pay rent
Patent
3. Debtor owes a debt (Obligation to pay rent)
17
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

Example 2 Debtor agrees that if it fails to pay
rent when due, Secured will become the owner of
Debtors patent.
Lease of real property
Secured
Debtor
Obligation to pay rent
Patent
3. Debtor owes a debt (Obligation to pay rent) 1.
The agreement gives Secured a right in the patent
18
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

Example 2 Debtor agrees that if it fails to pay
rent when due, Secured will become the owner of
Debtors patent.
Lease of real property
Secured
Debtor
Obligation to pay rent
Patent
3. Debtor owes a debt (Obligation to pay rent) 1.
The agreement gives Secured a right in the
patent 2. The right is contingent on nonpayment
(if Debtor pays, Secured has no right in the
patent).
19
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

Example 2 Debtor agrees that if it fails to pay
rent when due, Secured will become the owner of
Debtors patent.
Lease of real property
Secured
Debtor
Obligation to pay rent
Patent
3. Debtor owes a debt (Obligation to pay rent) 1.
The agreement gives Secured a right in the
patent 2. The right is contingent on nonpayment
(if Debtor pays, Secured has no right in the
patent). This is a security interest
20
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

Example 3 Jan 1, Debtor sells Blackacre (worth
1 million) to Secured for 500,000 Secured
grants an option to Debtor to repurchase
Blackacre for 600,000 by Dec 30.
500,000 plus option
Secured
Debtor
Deed to Blackacre
Blackacre
21
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

Example 3 Jan 1, Debtor sells Blackacre (worth
1 million) to Secured for 500,000 Secured
grants an option to Debtor to repurchase
Blackacre for 600,000 by Dec 30.
500,000 plus option
Secured
Debtor
Deed to Blackacre
Blackacre
3. The option is arguably a debt because it must
be exercised
22
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

Example 3 Jan 1, Debtor sells Blackacre (worth
1 million) to Secured for 500,000 Secured
grants an option to Debtor to repurchase
Blackacre for 600,000 by Dec 30.
500,000 plus option
Secured
Debtor
Deed to Blackacre
Blackacre
3. The option is arguably a debt because it must
be exercised 1. Secured has in interest in
Blackacre (ownership)
23
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

Example 3 Jan 1, Debtor sells Blackacre (worth
1 million) to Secured for 500,000 Secured
grants an option to Debtor to repurchase
Blackacre for 600,000 by Dec 30.
500,000 plus option
Secured
Debtor
Deed to Blackacre
Blackacre
3. The option is arguably a debt because it must
be exercised 1. Secured has in interest in
Blackacre (ownership) 2. Secureds right is
contingent on nonpayment (if Debtor exercises the
option, Secured has no right in Blackacre).
24
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

Example 3 Jan 1, Debtor sells Blackacre (worth
1 million) to Secured for 500,000 Secured
grants an option to Debtor to repurchase
Blackacre for 600,000 by Dec 30.
500,000 plus option
Secured
Debtor
Deed to Blackacre
Blackacre
3. The option is arguably a debt because it must
be exercised 1. Secured has in interest in
Blackacre (ownership) 2. Secureds right is
contingent on nonpayment (if Debtor exercises the
option, Secured has no right in Blackacre). This
is a probably security interest
25
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

Example 4 Secured leases an auto to Debtor for
five years. At the end of the lease, Debtor has
the right to purchase the auto for 1.
Lease and option
Debtor
Secured
Promise to pay rent
26
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

Example 4 Secured leases an auto to Debtor for
five years. At the end of the lease, Debtor has
the right to purchase the auto for 1.
Lease and option
Debtor
Secured
Promise to pay rent
3. Debtor owes a debt (Promise to pay rent)
27
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

Example 4 Secured leases an auto to Debtor for
five years. At the end of the lease, Debtor has
the right to purchase the auto for 1.
Lease and option
Debtor
Secured
Promise to pay rent
3. Debtor owes a debt (Promise to pay rent) 1.
The agreement gives Secured a right in the auto
(to repo)
28
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

Example 4 Secured leases an auto to Debtor for
five years. At the end of the lease, Debtor has
the right to purchase the auto for 1.
Lease and option
Debtor
Secured
Promise to pay rent
3. Debtor owes a debt (Promise to pay rent) 1.
The agreement gives Secured a right in the auto
(to repo) 2. The right is contingent on
nonpayment (if Debtor pays debt plus 1, Debtor
will own the auto).
29
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

Example 4 Secured leases an auto to Debtor for
five years. At the end of the lease, Debtor has
the right to purchase the auto for 1.
Lease and option
Debtor
Secured
Promise to pay rent
3. Debtor owes a debt (Promise to pay rent) 1.
The agreement gives Secured a right in the auto
(to repo) 2. The right is contingent on
nonpayment (if Debtor pays debt plus 1, Debtor
will own the auto). This is a security interest.
30
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

Example 5 Secured agrees to sell auto to Debtor
if debtor has paid 30,000, in five years.
Secured gives possession now, but retains
ownership until payments have been made
Contract to sell later
Debtor
Secured
Promise to pay 30,000
31
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

Example 5 Secured agrees to sell auto to Debtor
if debtor has paid 30,000, in five years.
Secured gives possession now, but retains
ownership until payments have been made
Contract to sell later
Debtor
Secured
Promise to pay 30,000
3. Debtor owes a debt (Promise to pay 30,000)
32
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

Example 5 Secured agrees to sell auto to Debtor
if debtor has paid 30,000, in five years.
Secured gives possession now, but retains
ownership until payments have been made
Contract to sell later
Debtor
Secured
Promise to pay 30,000
3. Debtor owes a debt (Promise to pay 30,000) 1.
Secured has an interest in the auto (permanent
right to keep)
33
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

Example 5 Secured agrees to sell auto to Debtor
if debtor has paid 30,000, in five years.
Secured gives possession now, but retains
ownership until payments have been made
Contract to sell later
Debtor
Secured
Promise to pay 30,000
3. Debtor owes a debt (Promise to pay 30,000) 1.
Secured has an interest in the auto (permanent
right to keep) 2. The right is contingent on
nonpayment (if Debtor pays, Secured has no right
in the auto).
34
Basic concepts

• Security interest (mortgage) (1) An interest in
  property
• (2) contingent on the non-payment (3) of a debt.

Example 5 Secured agrees to sell auto to Debtor
if debtor has paid 30,000, in five years.
Secured gives possession now, but retains
ownership until payments have been made
Contract to sell later
Debtor
Secured
Promise to pay 30,000
3. Debtor owes a debt (Promise to pay 30,000) 1.
Secured has an interest in the auto (permanent
right to keep) 2. The right is contingent on
nonpayment (if Debtor pays, Secured has no right
in the auto). This is a security interest.
2-401(1), page 28
35
Basic concepts

• Right to redeem The debtors right to pay the
  debt and own the property free of the security
  interest. Debtor always has the right to redeem.
• Foreclosure Termination of the debtors right to
  redeem
• Four types of foreclosure
• 1. Judicial foreclosure (by statute, court)
• 2. Power of sale foreclosure (by contract, real
  estate, no court)
• 3. UCC foreclosure by sale (by statute,
  personalty, no court)
• 4. Strict foreclosure (secured creditor gets the
  collateral)
• Deed in lieu of foreclosure Voluntary transfer
  of the debtors ownership / right to redeem to
  the creditor
• Is a deed in lieu of foreclosure a security
  interest?
• If the secureds right is contingent on
  nonpayment of a debt.

36
Sale of Accounts
Citibank debtor
1.1 billion accounts owing
900 million advances
Debtor operates a business that generates
accounts, e.g. credit cards
Account Debtors
37
Sale of Accounts
Citibank debtor
1.1 billion accounts owing
900 million advances
Debtor operates a business that generates
accounts, e.g. credit cards Debtor wants to free
up capital
Account Debtors
38
Sale of Accounts
Accounts
Buyer
Citibank debtor
1 billion
1.1 billion accounts owing
Debtor operates a business that generates
accounts, e.g. credit cards Debtor wants to free
up capital So Debtor sells the accounts
Account Debtors
39
Sale of Accounts
Accounts
Buyer
Citibank debtor
1 billion
1.1 billion accounts owing
Debtor operates a business that generates
accounts, e.g. credit cards Debtor wants to free
up capital So Debtor sells the accounts
Account Debtors
40
Sale of Accounts
Buyer
Citibank Debtor
1.1 billion accounts owing
Debtor operates a business that generates
accounts, e.g. credit cards Debtor wants to free
up capital So Debtor sells the accounts
Account Debtors
41
Sale of Accounts With Recourse
Accounts
Buyer
Citibank debtor
1 billion
Debtor operates a business that generates
accounts, e.g. credit cards Debtor wants to free
up capital So Debtor sells the accounts
Account Debtors
With recourse If an account debtor doesnt
pay, Debtor will buy the account back for the
accounts face amount
42
Sale of Accounts With Recourse
Account
Buyer
Citibank debtor
500
Debtor operates a business that generates
accounts, e.g. credit cards Debtor wants to free
up capital So Debtor sells the accounts
Account Debtors
With recourse If an account debtor doesnt
pay, Debtor will buy the account back for the
accounts face amount
43
Security Interest in Accounts
Security interest
Secured Party
Citibank debtor
1 billion loan
1.1 billion
Debtor operates a business that generates
accounts, e.g. credit cards Debtor wants to free
up capital So Debtor borrows against the accounts
Account Debtors
This deal is the same as the Sale of Accounts
With Recourse
44
Asset securitization
Sale of Accounts
Buyer
Originator
1 billion
1.1 billion
Account debtors
45
Asset securitization
Sale of Accounts
Trust (SPE)
Originator
1 billion
1.1 billion
Account debtors
46
Asset securitization
Sale of Accounts
Trust (SPE)
Originator
1 billion
Investment certificates (securities)
1 billion
1.1 billion
Account debtors
Investors
47
Asset securitization
Sale of Accounts
Trust (SPE)
Originator
1 billion
Investment certificates (securities)
1 billion
Did this deal create a security interest? An
interest in property contingent on the
non-payment of a debt.
Investors
48
Asset securitization
Sale of Accounts
Trust (SPE)
Originator
1 billion
Investment certificates (securities)
1 billion

• Did this deal create a security interest? No

Investors
49
Asset securitization
Sale of Accounts
Trust (SPE)
Originator
1 billion
Investment certificates (securities)
1 billion

• Did this deal create a security interest? No
• Add Investors want guaranteed return,
• dont want to engage in business

Investors
50
Asset securitization
Sale of Accounts
Trust (SPE)
Originator
1 billion
Investment certificates (securities)
1 billion

• Did this deal create a security interest? No
• Add Investors want guaranteed return,
• dont want to engage in business
• Originator will service the accounts

Investors
51
Asset securitization
Sale of Accounts
Trust (SPE)
Originator
1 billion
Investment certificates (securities)
1 billion

• Did this deal create a security interest? No
• Add Investors want guaranteed return,
• dont want to engage in business
• Originator will service the accounts
• Originator will replace bad accounts (like
  recourse)

Investors
52
Asset securitization
Sale of Accounts
Trust (SPE)
Originator
1 billion
Investment certificates (securities)
1 billion

• Did this deal create a security interest? No
• Add Investors want guaranteed return,
• dont want to engage in business
• Originator will service the accounts
• Originator will replace bad accounts (like
  recourse)

Investors
Now does the securitization create a security
interest?
53
Asset securitization
Sale of Accounts
Trust (SPE)
Originator
1 billion
Investment certificates (securities)
1 billion

• Did this deal create a security interest? No
• Add Investors want guaranteed return,
• dont want to engage in business
• Originator will service the accounts
• Originator will replace bad accounts (like
  recourse)

Investors
Now does the securitization create a security
interest? Yes.
54
Securitized Loan
Trust (SPE)
Originator
1 billion
Investment certificates (securities) secured by
accounts.
Investors
1.1 billion
55
Securitized Loan
Trust (SPE)
Originator
1 billion
Investment certificates (securities) secured by
accounts.
Investors
1.1 billion
What difference between the recourse Asset
Securitization and this Securitized Loan?
56
Securitized Loan
Trust (SPE)
Originator
1 billion
Investment certificates (securities) secured by
accounts.
Investors
1.1 billion
Both the Securitized Loan and the recourse Asset
Securitization 1. Securitize the accounts 2.
Assure investors payment of 1.1 billion account
ownership 3. Give investors an interest in
accounts contingent on the nonpayment of a debt
57
Problem 2.1, page 35

• As in problem 1.5, we represent Karen Benning
  pursuing Ted Knopf for repayment of the 10,000
  loan
• We have a security interest naming these items as
  collateral
• 1. Toyota automobile worth 6,000
• 2. Inherited house worth 35,000
• 3. Day care equipment worth 10,000
• 4. Bank account, balance 2,265.92
• a. Which can we foreclose on?
• b. Waiver is a voluntarty relinquishment of a
  known right.

58
Problem 2.1, page 35

• As in problem 1.5, we represent Karen Benning
  pursuing Ted Knopf for repayment of the 10,000
  loan
• We have a security interest naming these items as
  collateral
• 1. Toyota automobile worth 6,000
• 2. Inherited house worth 35,000
• 3. Day care equipment worth 10,000
• 4. Bank account, balance 2,265.92
• a. Which can we foreclose on?
• b. Waiver is a voluntarty relinquishment of a
  known right. Isnt a security interest a waiver
  of exemptions prohibited by Wis. Stat.
  815.18(6)(a)? (Page 15)

59
Problem 2.2, Two ways to move cars
60
Problem 2.2, Two ways to move cars
61
Problem 2.2, Two ways to move cars
62
Problem 2.2, Two ways to move cars
63
Problem 2.2, Two ways to move cars
64
Problem 2.2, Two ways to move cars
65
Problem 2.2, Two ways to move cars
66
Problem 2.2, Two ways to move cars
67
Sale-Lease Distinction

• 9-109(a)(1) This article applies to a
  transaction, regardless of its form, that creates
  a security interest in personal property

68
Sale-Lease Distinction

• 9-109(a)(1) This article applies to a
  transaction, regardless of its form, that creates
  a security interest in personal property
• 1-203. A transaction in the form of a lease
  creates a security interest if the consideration
  . . . is an obligation for the term of the lease
  not subject to termination by the lessee

69
Sale-Lease Distinction

• 9-109(a)(1) This article applies to a
  transaction, regardless of its form, that creates
  a security interest in personal property
• 1-203. A transaction in the form of a lease
  creates a security interest if the consideration
  . . . is an obligation for the term of the lease
  not subject to termination by the lessee, and . .
  . the lease is for the remaining economic life
  of the goods

Economic life
Security interest
Lease term
70
Sale-Lease Distinction

• 9-109(a)(1) This article applies to a
  transaction, regardless of its form, that creates
  a security interest in personal property
• 1-203. A transaction in the form of a lease
  creates a security interest if the consideration
  . . . is an obligation for the term of the lease
  not subject to termination by the lessee, and . .
  . the lease is for the remaining economic life
  of the goods by
• 1. Original term

Economic life
Security interest
Lease term
71
Sale-Lease Distinction

• 9-109(a)(1) This article applies to a
  transaction, regardless of its form, that creates
  a security interest in personal property
• 1-203. A transaction in the form of a lease
  creates a security interest if the consideration
  . . . is an obligation for the term of the lease
  not subject to termination by the lessee, and . .
  . the lease is for the remaining economic life
  of the goods by
• 1. Original term
• 2. Required renewal or purchase

Economic life
Security interest
Lease term
Mandatory renewal
72
Sale-Lease Distinction

• 9-109(a)(1) This article applies to a
  transaction, regardless of its form, that creates
  a security interest in personal property
• 1-203. A transaction in the form of a lease
  creates a security interest if the consideration
  . . . is an obligation for the term of the lease
  not subject to termination by the lessee, and . .
  . the lease is for the remaining economic life
  of the goods by
• 1. Original term
• 2. Required renewal or purchase
• 3. Renewal term for no (or nominal) additional
  consideration

Economic life
Security interest
Lease term
Free renewal
73
Sale-Lease Distinction

• 9-109(a)(1) This article applies to a
  transaction, regardless of its form, that creates
  a security interest in personal property
• 1-203. A transaction in the form of a lease
  creates a security interest if the consideration
  . . . is an obligation for the term of the lease
  not subject to termination by the lessee, and . .
  . the lease is for the remaining economic life
  of the goods by
• 1. Original term
• 2. Required renewal or purchase
• 3. Renewal term for no (or nominal) additional
  consideration
• 4. Option to buy for no (or nominal) additional
  consideration

Economic life
Security interest
Lease term
Option to buy for free
74
Sale-Lease Distinction

• 9-109(a)(1) This article applies to a
  transaction, regardless of its form, that creates
  a security interest in personal property
• 1-203. A transaction in the form of a lease
  creates a security interest if the consideration
  . . . is an obligation for the term of the lease
  not subject to termination by the lessee, and . .
  . the lease is for the remaining economic life
  of the goods by
• 1. Original term
• 2. Required renewal or purchase
• 3. Renewal term for no (or nominal) additional
  consideration
• 4. Option to buy for no (or nominal) additional
  consideration

Economic life
True Lease
Meaningful reversion
Lease term
75
Problem 2.2, Two ways to move cars
76
Problem 2.3.a, page 36
We represent bank in foreclosure against
OHurleys.
77
Problem 2.3.a, page 36
We represent bank in foreclosure against
OHurleys. Mrs. OHurly offers a deal The
OHurleys deed the property to Bank, Bank drops
the foreclosure, we prepare the documents.
78
Problem 2.3.a, page 36
We represent bank in foreclosure against
OHurleys. Mrs. OHurly offers a deal The
OHurleys deed the property to Bank, Bank drops
the foreclosure, we prepare the documents.

• Now

Deed in lieu
Mortgage
79
Problem 2.3.a, page 36
We represent bank in foreclosure against
OHurleys. Mrs. OHurly offers a deal The
OHurleys deed the property to Bank, Bank drops
the foreclosure, we prepare the documents. See
any legal problems? Is this a good deal for the
bank?

• Now

Deed in lieu
Mortgage
80
Problem 2.3.a, page 36
We represent bank in foreclosure against
OHurleys. Mrs. OHurly offers a deal The
OHurleys deed the property to Bank, Bank drops
the foreclosure, we prepare the documents. See
any legal problems? Is this a good deal for the
bank? If you represented the OHurleys, what
advice?

• Now

Deed in lieu
Mortgage
81
Problem 2.3.b, page 36
We represent bank in foreclosure against
OHurleys. Mrs. OHurly offers a deal The
OHurleys deed the property to Bank, Bank drops
the foreclosure, we prepare the documents.
OHurleys have 60 days.

• Now

Bank can record
60 days
Deed in lieu
Mortgage
82
Problem 2.3.b, page 36
We represent bank in foreclosure against
OHurleys. Mrs. OHurly offers a deal The
OHurleys deed the property to Bank, Bank drops
the foreclosure, we prepare the documents.
OHurleys have 60 days. See any legal problems?

• Now

Bank can record
60 days
Deed in lieu
Mortgage
83
Problem 2.3.b, page 36
We represent bank in foreclosure against
OHurleys. Mrs. OHurly offers a deal The
OHurleys deed the property to Bank, Bank drops
the foreclosure, we prepare the documents.
OHurleys have 60 days. See any legal problems?
This Deed in lieu gives bank an interest in
property contingent on the nonpayment of a debt

• Now

Bank can record
60 days
Deed in lieu
Mortgage
84
Problem 2.3.b, page 36
We represent bank in foreclosure against
OHurleys. Mrs. OHurly offers a deal The
OHurleys deed the property to Bank, Bank drops
the foreclosure, we prepare the documents.
OHurleys have 60 days. See any legal problems?
This Deed in lieu gives bank an interest in
property contingent on the nonpayment of a
debt Assume we did it, 60 days passed. OHurleys
didnt pay. Now what?

• Now

Bank can record
60 days
Deed in lieu
Mortgage
85
Problem 2.3.b, page 36
We represent bank in foreclosure against
OHurleys. Mrs. OHurly offers a deal The
OHurleys deed the property to Bank, Bank drops
the foreclosure, we prepare the documents.
OHurleys have 60 days. See any legal problems?
This Deed in lieu gives bank an interest in
property contingent on the nonpayment of a
debt Assume we did it, 60 days passed. OHurleys
didnt pay. Now what? The bank must file a
foreclose action.

• Now

Bank can record
60 days
Deed in lieu
Mortgage
86
Problem 2.4, page 36
Mashimotos idea
Trustee Bank
Deed of trust
Bank
Borrower
Loan
Loan and deed of trust
87
Problem 2.4, page 36
Mashimotos idea
Trustee Bank
Deed of trust
Bank
Borrower
Loan

• Default

Loan and deed of trust
88
Problem 2.4, page 36
Mashimotos idea
Trustee Bank
Deed of trust
Deed in lieu
Bank
Borrower
Loan

• Default

Deed in lieu
Loan and deed of trust
89
Problem 2.4, page 36
Mashimotos idea
Trustee Bank
Deed of trust
Deed in lieu
Bank
Borrower
Loan

• Default

Will this work?
Deed in lieu
Loan and deed of trust
90
Problem 2.4, page 36
Mashimotos idea
Trustee Bank
Deed of trust
Deed in lieu
Bank
Borrower
Loan

• Default

Will this work? How is this different from
California power of sale?
Deed in lieu
Loan and deed of trust
91
Problem 2.4, page 36
Public sale (foreclosure)
Mashimotos idea
Trustee Bank
Deed of trust
Bank
Borrower
Loan

• Default

Will this work? How is this different from
California power of sale?
Deed in lieu
Loan and deed of trust
92
Problem 2.5, page 37
Old way We loan to a corporate borrower, take a
mortgage, and foreclose on default.
Loan
Bank
Corporate borrower
Mortgage
93
Problem 2.5, page 37
Old way We loan to a corporate borrower, take a
mortgage, and foreclose on default.
Loan
Bank
Corporate borrower
Mortgage
Year long foreclosure!
94
Problem 2.5, page 37
Mashimotos new idea We also take a security
interest in the stock, foreclose against that.
Loan
Bank
Corporate borrower
Mortgage
95
Problem 2.5, page 37
Mashimotos new idea We also take a security
interest in the stock, foreclose against that.
Corporate borrower
Mortgage
100 ownership (stock)
Loan
Bank
Share- holder
Security interest in the stock
Stock Certificate
Foreclosure sale
96
Problem 2.5, page 37
Mashimotos new idea We also take a security
interest in the stock, foreclose against that.
Assume factory worth 1 million, mortgage 1
million
Corporate borrower
Mortgage
100 ownership (stock)
Loan
Bank
Share- holder
Security interest in the stock
Stock Certificate
Foreclosure sale
97
Problem 2.5, page 37
Mashimotos new idea We also take a security
interest in the stock, foreclose against that.
What will the stock sell for?
Assume factory worth 1 million, mortgage 1
million
Corporate borrower
Mortgage
100 ownership (stock)
Loan
Bank
Share- holder
Security interest in the stock
Stock Certificate
Foreclosure sale
98
Problem 2.5, page 37
Mashimotos new idea We also take a security
interest in the stock, foreclose against that.
What will the stock sell for?
Assume factory worth 1 million, mortgage 1
million
Corporate borrower
Mortgage
100 ownership (stock)
Loan
Bank
Share- holder
Security interest in the stock
Stock Certificate
Stock value is equal to the corporations
equity zero
Foreclosure sale
99
Problem 2.5, page 37
Mashimotos new idea We also take a security
interest in the stock, foreclose against that.
What will the stock sell for? Nominal amount.
Assume factory worth 1 million, mortgage 1
million
Corporate borrower
Mortgage
100 ownership (stock)
Loan
Bank
Share- holder
Security interest in the stock
Stock Certificate
Foreclosure sale
100
Problem 2.5, page 37
Mashimotos new idea We also take a security
interest in the stock, foreclose against that.
What will the stock sell for? Nominal amount.
Assume factory worth 1 million, mortgage 1
million
Corporate borrower
Mortgage
Stock
Bank
101
Problem 2.5, page 37
Mashimotos new idea We also take a security
interest in the stock, foreclose against that.
What will the stock sell for? Nominal amount.
Assume factory worth 1 million, mortgage 1
million
Corporate borrower
Deed in lieu
Stock
Bank
Last step Bank elects directors who grant a deed
in lieu.
102
Problem 2.5, page 37
Mashimotos new idea We also take a security
interest in the stock, foreclose against that.
Corporate borrower
Mortgage
100 ownership (stock)
Loan
Bank
Share- holder
Security interest in the stock
Will this work to avoid mortgage foreclosure?
103
Problem 2.6, page 37
Judicial foreclosure procedure
Service
Judgment
Sale
SJ motion . . .
Sale confirmation
Complaint
Answer
or trial
104
Problem 2.6, page 37
Judicial foreclosure procedure
Service
Judgment
Sale
SJ motion . . .
Sale confirmation
Complaint
Answer
or trial

• Debtors want more time to pay, dont really
  dispute debt.

105
Problem 2.6, page 37
Judicial foreclosure procedure
Service
Judgment
Sale
SJ motion . . .
Sale confirmation
Complaint
Answer
or trial

• Debtors want more time to pay, dont really
  dispute debt.
• To delay foreclosure, they contest (motion to
  dismiss, affidavit in response to summary
  judgment motion, etc.)

106
Problem 2.6, page 37
Judicial foreclosure procedure
Service
Judgment
Sale
SJ motion . . .
Sale confirmation
Complaint
Answer
or trial

• Debtors want more time to pay, dont really
  dispute debt.
• To delay foreclosure, they contest (motion to
  dismiss, affidavit in response to summary
  judgment motion, etc.)
• Waste of effort and expense

107
Problem 2.6, page 37
Judicial foreclosure procedure
Service
Judgment
Sale
SJ motion . . .
Sale confirmation
Complaint
Answer
or trial

• Debtors want more time to pay, dont really
  dispute debt.
• To delay foreclosure, they contest (motion to
  dismiss, affidavit in response to summary
  judgment motion, etc.)
• Waste of effort and expense
• Rowsey wants to give the time, but not incur the
  expense

108
Problem 2.6, page 37
Judicial foreclosure procedure
Service
Judgment
Sale
SJ motion . . .
Sale confirmation
Complaint
Answer
or trial

• Debtors want more time to pay, dont really
  dispute debt.
• To delay foreclosure, they contest (motion to
  dismiss, affidavit in response to summary
  judgment motion, etc.)
• Waste of effort and expense
• Rowsey wants to give the time, but not incur the
  expense
• How could the legislature accomplish that?

109
Problem 2.6, page 37
Judicial foreclosure procedure
No sale may be held less than one year after to
the filing of the action.
Service
Judgment
Sale
SJ motion . . .
Sale confirmation
Complaint
Answer
or trial

• Debtors want more time to pay, dont really
  dispute debt.
• To delay foreclosure, they contest (motion to
  dismiss, affidavit in response to summary
  judgment motion, etc.)
• Waste of effort and expense
• Rowsey wants to give the time, but not incur the
  expense
• How could the legislature accomplish that?

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121
Does Bank have an interest in property contingent
on the non-payment of a debt?
122
Does Bank have an interest in property contingent
on the non-payment of a debt? If so, what are the
consequences?