Secured Transactions Assignment 26

1
Secured TransactionsAssignment 26

• Priority Under State Law

2
The Big Picture

• Part Two The Creditor Third Party Relationship
• Chapter 6-7 Perfection
• Chapter 8 Priority
• Assignment 26 Priority Under State Law

3
The Big Picture

• Part Two The Creditor Third Party Relationship
• Chapter 6-7 Perfection
• Chapter 8 Priority
• Assignment 26 Priority Under State Law
• Chapter 9 Specific Priority Rules
• Assignment 28 Lien Creditors against Secureds
• Assignment 29 Future Advances
• Assignment 32 Secureds against Secureds
• Assignment 33 Priority in Real Property
• Assignment 35 Sellers against Secureds
• Assignment 36 Buyers against Secureds

4
The Big Picture

• Assignment 26 revisits three prior assignments

5
The Big Picture

• Assignment 26 revisits three prior assignments
• Assignments 4 and 5 Foreclosure sale
• Assignment 3 Possession pending foreclosure

6
The Big Picture

• Assignment 26 revisits three prior assignments
• Assignments 4 and 5 Foreclosure sale
• Assignment 3 Possession pending foreclosure
• but in the three-party context

7
The Rules Governing Foreclosure

Subordinate

• Sale discharges the lien under which the sale was
  held and all subordinate liens, 9-617
• The buyer takes subject to prior liens
• The proceeds go
• To the expenses of sale
• To the lien under which the sale was held
• To subordinate liens
• To the debtor

Under which sale held
Prior
8
The Rules Governing Foreclosure

Subordinate

• Sale discharges the lien under which the sale was
  held and all subordinate liens, 9-617
• The buyer takes subject to prior liens
• The proceeds go
• To the expenses of sale
• To the lien under which the sale was held
• To subordinate liens
• To the debtor

Prior
Before
After
9
The Rules Governing Foreclosure

Subordinate

• Sale discharges the lien under which the sale was
  held and all subordinate liens, 9-617
• The buyer takes subject to prior liens
• The proceeds go 9-615(a)

Prior
Before
After
10
The Rules Governing Foreclosure

Subordinate

• Sale discharges the lien under which the sale was
  held and all subordinate liens, 9-617
• The buyer takes subject to prior liens
• The proceeds go 9-615(a)
• a. To the expenses of sale

Prior
Before
After
11
The Rules Governing Foreclosure

Subordinate

• Sale discharges the lien under which the sale was
  held and all subordinate liens, 9-617
• The buyer takes subject to prior liens
• The proceeds go 9-615(a)
• a. To the expenses of sale
• b. To the lien under which the sale was held

Prior
Before
After
12
The Rules Governing Foreclosure

Subordinate

• Sale discharges the lien under which the sale was
  held and all subordinate liens, 9-617
• The buyer takes subject to prior liens
• The proceeds go 9-615(a)
• a. To the expenses of sale
• b. To the lien under which the sale was held
• c. To subordinate liens

Prior
Before
After
13
The Rules Governing Foreclosure

Subordinate

• Sale discharges the lien under which the sale was
  held and all subordinate liens, 9-617
• The buyer takes subject to prior liens
• The proceeds go 9-615(a)
• a. To the expenses of sale
• b. To the lien under which the sale was held
• c. To subordinate liens
• d. To the debtor (ignoring unsecureds)

Prior
Before
After
14
The Rules Governing Foreclosure

Subordinate

• Sale discharges the lien under which the sale was
  held and all subordinate liens, 9-617
• The buyer takes subject to prior liens
• The proceeds go 9-615(a)
• a. To the expenses of sale
• b. To the lien under which the sale was held
• c. To subordinate liens
• d. To the debtor (ignoring unsecureds)
• No proceeds go to prior (senior) liens.

Prior
Before
After
15
The Rules Governing Possession
1. 9-609. After default, a secured party may
take possession of the collateral. 2. A judgment
creditor has the right to levy on any property of
the debtor 3. When rights to possession clash,
the holder of the prior perfected lien has the
right to possession. Grocers Supply v.
Intercity Investment 4. The holder of a prior
perfected lien must either foreclose or stand
aside so that the holder of a junior lien may do
so. Frierson v. United Farm Agency 5. The
exercise of dominion and control over collateral
a secured party has the right to possess is
wrongful and constitutes conversion

16
The Rules Governing Possession
1. 9-609. After default, a secured party may
take possession of the collateral. 2. A judgment
creditor has the right to levy on encumbered or
unencumbered property. The sheriff takes
possession. 3. When rights to possession clash,
the holder of the prior perfected lien has the
right to possession. Grocers Supply v.
Intercity Investment 4. The holder of a prior
perfected lien must either foreclose or stand
aside so that the holder of a junior lien may do
so. Frierson v. United Farm Agency 5. The
exercise of dominion and control over collateral
a secured party has the right to possess is
wrongful and constitutes conversion

17
The Rules Governing Possession
1. 9-609. After default, a secured party may
take possession of the collateral. 2. A judgment
creditor has the right to levy on encumbered or
unencumbered property. The sheriff takes
possession. 3. When rights to possession clash,
the holder of the prior perfected lien (in
default) has the right to possession. Grocers
Supply v. Intercity Investment 4. The holder of a
prior perfected lien must either foreclose or
stand aside so that the holder of a junior lien
may do so. Frierson v. United Farm Agency 5. The
exercise of dominion and control over collateral
a secured party has the right to possess is
wrongful and constitutes conversion

18
The Rules Governing Possession
1. 9-609. After default, a secured party may
take possession of the collateral. 2. A judgment
creditor has the right to levy on encumbered or
unencumbered property. The sheriff takes
possession. 3. When rights to possession clash,
the holder of the prior perfected lien (in
default) has the right to possession. Grocers
Supply v. Intercity Investment 4. Limit on 3
The holder of a prior perfected lien must either
foreclose or stand aside so that the holder of a
junior lien may do so. Frierson v. United Farm
Agency 5. The exercise of dominion and control
over collateral a secured party has the right to
possess is wrongful and constitutes conversion

19
The Rules Governing Possession
1. 9-609. After default, a secured party may
take possession of the collateral. 2. A judgment
creditor has the right to levy on encumbered or
unencumbered property. The sheriff takes
possession. 3. When rights to possession clash,
the holder of the prior perfected lien (in
default) has the right to possession. Grocers
Supply v. Intercity Investment 4. Limit on 3
The holder of a prior perfected lien must either
foreclose or stand aside so that the holder of a
junior lien may do so. Frierson v. United Farm
Agency 5. Wrongful exercise of dominion and
control over anothers collateral constitutes
conversion

20
Notification date
21
Notification date

Notice date
Sale date
10 days 9-612
A secured party must send notice to the debtor of
disposition, 9-611(b)
22
Notification date

Notification date
Sale date
10 days 9-612
A secured party must send notice to the debtor of
disposition, 9-611(b) Notification date is the
date on which the secured party sends that
notice, 9-611(a)(1)
23
Notification date

Notification date
Sale date
10 days 9-612
A secured party must send notice to the debtor of
disposition, 9-611(b) Notification date is the
date on which the secured party sends that
notice, 9-611(a)(1) The secured party must also
send notice to other lienholders who perfected by
filing or notation . . .
24
Notification date

Record date
Notification date
Sale date
10 days 9-612
A secured party must send notice to the debtor of
disposition, 9-611(b) Notification date is the
date on which the secured party sends that
notice, 9-611(a)(1) The secured party must also
send notice to other lienholders who perfected by
filing or notation as of the record date
25
Notification date

Record date
Notification date
Sale date
10 days, 9-611(c)(3)(B)
10 days 9-612
A secured party must send notice to the debtor of
disposition, 9-611(b) Notification date is the
date on which the secured party sends that
notice, 9-611(a)(1) The secured party must also
send notice to other lienholders who perfected by
filing or notation as of the record date The
record date is ten days before the notification
date. 9-611(c)(3)(B).
26
Notification date

Search request
Record date
Notification date
Sale date
10 days, 9-611(c)(3)(B)
10 days 9-612
10 days, 9-611(e)(1)
A secured party must send notice to the debtor of
disposition, 9-611(b) Notification date is the
date on which the secured party sends that
notice, 9-611(a)(1) The secured party must also
send notice to other lienholders who perfected by
filing or notation as of the record date The
record date is ten days before the notification
date. 9-611(c)(3)(B). Search request is
sufficient if sent 20 days before Notification.
27
Secured TransactionsAssignment 26

• Priority Under State Law

28
Problem 26.1, page 443
200 sale expense
29K
25K
10K
17K
How much should Kinski bid? If she is the high
bid, what title does she get?
29
Problem 26.1, page 443
200 sale expense
29K

• Sale discharges the lien under which the sale was
  held and all subordinate liens
• The buyer takes subject to prior liens

25K
25K
10K
17K
17K
After
Before
How much should Kinski bid? If she is the high
bid, what title does she get?
30
Problem 26.1, page 443
200 sale expense

• Sale discharges the lien under which the sale was
  held and all subordinate liens
• The buyer takes subject to prior liens

29K
25K
25K
10K
8K
17K
17K
After
Before
How much should Kinski bid? Up to 8K
31
Problem 26.1, page 443
200 sale expense

• Sale discharges the lien under which the sale was
  held and all subordinate liens
• The buyer takes subject to prior liens

29K
25K
25K
10K
8K
17K
17K
After
Before
How much should Kinski bid? Up to 8K Expenses
of sale?
32
Problem 26.1, page 443
29K
200 sale expense

• Sale discharges the lien under which the sale was
  held and all subordinate liens
• The buyer takes subject to prior liens
• The proceeds go
• To the expenses of sale
• To the lien under which the sale was held
• To subordinate liens
• To the debtor

10K
25K
25K
17K
17K
After
Before
How much should Kinski bid? Up to 8K Expenses
of sale? Paid from proceeds
33
Problem 26.2, page 443
200 sale expense

• Sale discharges the lien under which the sale was
  held and all subordinate liens
• The buyer takes subject to prior liens
• The proceeds go
• To the expenses of sale
• To the lien under which the sale was held
• To subordinate liens
• To the debtor

8K
30K
75K
60K
After
Before
How much should a buyer bid?
34
Problem 26.2, page 443
200 sale expense

• Sale discharges the lien under which the sale was
  held and all subordinate liens
• The buyer takes subject to prior liens
• The proceeds go
• To the expenses of sale
• To the lien under which the sale was held
• To subordinate liens
• To the debtor

8K
30K
30K
75K
75K
60K
60K
After
Before
How much should a buyer bid? Zero?
35
Problem 26.2, page 443
200 sale expense

• Sale discharges the lien under which the sale was
  held and all subordinate liens
• The buyer takes subject to prior liens
• The proceeds go
• To the expenses of sale
• To the lien under which the sale was held
• To subordinate liens
• To the debtor

8K
30K
30K
75K
75K
60K
60K
After
Before
How much should a buyer bid? Zero? Expenses of
sale?
36
Problem 26.2, page 443
200 sale expense

• Sale discharges the lien under which the sale was
  held and all subordinate liens
• The buyer takes subject to prior liens
• The proceeds go
• To the expenses of sale
• To the lien under which the sale was held
• To subordinate liens
• To the debtor

8K
30K
30K
75K
75K
60K
60K
After
Before
How much should a buyer bid? Zero? Expenses of
sale? Paid by levying creditor.
37
Problem 26.2, page 443
200 sale expense

• Sale discharges the lien under which the sale was
  held and all subordinate liens
• The buyer takes subject to prior liens
• The proceeds go
• To the expenses of sale
• To the lien under which the sale was held
• To subordinate liens
• To the debtor
• Anyone want to bid 10?

8K
30K
30K
75K
75K
60K
60K
After
Before
How much should a buyer bid? Zero? Expenses of
sale? Paid by levying creditor.
38
Problem 26.3, page 444
200 sale expense
We represent Diamond Head Bank, 27K first
?
40K
27K
39
Problem 26.3, page 444
200 sale expense
We represent Diamond Head Bank, 27K first a.
Should we be concerned about this sale?
?
40K
27K
40
Problem 26.3, page 444
200 sale expense
We represent Diamond Head Bank, 27K first a.
Should we be concerned about this sale?
?
40K
40K
27K
27K
After
Before
41
Problem 26.3, page 444
200 sale expense

• We represent Diamond Head Bank, 27K first
• a. Should we be concerned about this sale?
  Miami sheriff sales

?
40K
40K
27K
27K
After
Before
42
Problem 26.3, page 444
200 sale expense

• We represent Diamond Head Bank, 27K first
• a. Should we be concerned about this sale?
  Miami sheriff sales
• Can we protect ourselves by buying at the sale?

?
40K
40K
27K
27K
After
Before
43
Problem 26.3, page 444
200 sale expense

• We represent Diamond Head Bank, 27K first
• a. Should we be concerned about this sale?
  Miami sheriff sales
• Can we protect ourselves by buying at the sale?
  Yes, but we are bidding additional money

?
40K
40K
27K
27K
After
Before
44
Problem 26.3, page 444
200 sale expense

• We represent Diamond Head Bank, 27K first
• a. Should we be concerned about this sale?
  Miami sheriff sales
• Can we protect ourselves by buying at the sale?
  Yes, but we are bidding additional money
• Can we prevent the sale?

?
40K
40K
27K
27K
After
Before
45
Problem 26.3, page 444
200 sale expense

• We represent Diamond Head Bank, 27K first
• a. Should we be concerned about this sale?
  Miami sheriff sales
• Can we protect ourselves by buying at the sale?
  Yes, but we are bidding additional money
• Can we prevent the sale? Maybe, Grocers Supply.

?
40K
40K
27K
27K
After
Before
46
Problem 26.3, page 444
200 sale expense

• We represent Diamond Head Bank, 27K first
• a. Should we be concerned about this sale?
  Miami sheriff sales
• Can we protect ourselves by buying at the sale?
  Yes, but we are bidding additional money
• Can we prevent the sale? Maybe, Grocers Supply.

?
40K
40K
27K
27K
After
Before
d. Were we entitled to sale notice?
47
Problem 26.3, page 444
200 sale expense

• We represent Diamond Head Bank, 27K first
• a. Should we be concerned about this sale?
  Miami sheriff sales
• Can we protect ourselves by buying at the sale?
  Yes, but we are bidding additional money
• Can we prevent the sale? Maybe, Grocers Supply.

?
40K
40K
27K
27K
After
Before
d. Were we entitled to sale notice? Remedy?
9-625(b), -617(b) 9-611(c)(3). The secured
party shall send . . . notification to . . . any
other secured party that . . . perfected by the
filing of a financing statement or in a federal
or certificate of title system
48
Problem 26.3, page 444
200 sale expense

• We represent Diamond Head Bank, 27K first
• a. Should we be concerned about this sale?
  Miami sheriff sales
• Can we protect ourselves by buying at the sale?
  Yes, but we are bidding additional money
• Can we prevent the sale? Maybe, Grocers Supply.

?
40K
40K
27K
27K
After
Before
d. Were we entitled to sale notice? Remedy?
9-625(b), -617(b) 9-611(c)(3). The secured
party shall send . . . notification to . . . any
other secured party that . . . perfected by the
filing of a financing statement or in a federal
or certificate of title system
49
Problem 26.4, page 444
120K
Friend wants to borrow 10K on a second mortgage
10K
80K
50
Problem 26.4, page 444
120K

• Friend wants to borrow 10K on a second mortgage
• If friend doesnt pay 10K mortgage, what will we
  do?

10K
80K
51
Problem 26.4, page 444
120K

• Friend wants to borrow 10K on a second mortgage
• If friend doesnt pay 10K mortgage, what will we
  do?

10K
80K
52
Problem 26.4, page 444
120K

• Friend wants to borrow 10K on a second mortgage
• If friend doesnt pay 10K mortgage, what will we
  do?
• Will we recover our 10K?

10K
80K
After
Before
53
Problem 26.4, page 444
120K
120K

• Friend wants to borrow 10K on a second mortgage
• If friend doesnt pay 10K mortgage, what will we
  do?
• Will we recover our 10K?

10K
80K
80K
After
Before
54
Problem 26.4, page 444
120K
120K

• Friend wants to borrow 10K on a second mortgage
• If friend doesnt pay 10K mortgage, what will we
  do?
• Will we recover our 10K? Yes

10K
80K
80K
After
Before
55
Problem 26.4, page 444
120K

• Friend wants to borrow 10K on a second mortgage
• If friend doesnt pay 10K mortgage, what will we
  do?
• Will we recover our 10K? Yes
• What if friend pays on 10K mortgage, defaults on
  80K?

10K
80K
After
Before
56
Problem 26.4, page 444
120K
120K

• Friend wants to borrow 10K on a second mortgage
• If friend doesnt pay 10K mortgage, what will we
  do?
• Will we recover our 10K? Yes
• What if friend pays on 10K mortgage, defaults on
  80K?

10K
80K
After
Before
57
Problem 26.4, page 444
120K
120K

• Friend wants to borrow 10K on a second mortgage
• If friend doesnt pay 10K mortgage, what will we
  do?
• Will we recover our 10K? Yes
• What if friend pays on 10K mortgage, defaults on
  80K?

10K
80K
After
Before

• Can we protect ourselves by provision in the
  mortgage?

58
Problem 26.4, page 444
120K
120K

• Friend wants to borrow 10K on a second mortgage
• If friend doesnt pay 10K mortgage, what will we
  do?
• Will we recover our 10K? Yes
• What if friend pays on 10K mortgage, defaults on
  80K?

10K
80K
After
Before

• Can we protect ourselves by provision in the
  mortgage?
• Cross default clause helps a little

59
Problem 26.4, page 444
120K
120K

• Friend wants to borrow 10K on a second mortgage
• If friend doesnt pay 10K mortgage, what will we
  do?
• Will we recover our 10K? Yes
• What if friend pays on 10K mortgage, defaults on
  80K?

10K
80K
After
Before

• Can we protect ourselves by provision in the
  mortgage?
• Cross default clause helps a little
• Wraparound mortgage. She pays on 90K, we pay
  on 80K.

60
Problem 26.5, page 444
36K

• Intercity levied on Grocery Store inventory for a
  36K judgment
• Grocers Supply sues Intercity and recovers 24K
  in damages from the levy
• Grocers Supply gives the inventory back to
  Grocery Store
• Intercity What should we do now?
• Pessimist Intercity cant collect
• Optimist Grocers Supply had right to property
  only for sale
• 5. How do we raise it? Motion to set aside
  earlier judgment for fraud? Declaratory judgment
  action?

600K

Grocers Supply
61
Problem 26.5, page 444
36K

• Intercity levied on Grocery Store inventory for a
  36K judgment
• Grocers Supply sued Intercity won return of
  collateral plus 24K in damages. Why?
• Grocers Supply gives the inventory back to
  Grocery Store
• Intercity What should we do now?
• Pessimist Intercity cant collect
• Optimist Grocers Supply had right to property
  only for sale
• 5. How do we raise it? Motion to set aside
  earlier judgment for fraud? Declaratory judgment
  action?

600K

Grocers Supply
62
Problem 26.5, page 444
36K

• Intercity levied on Grocery Store inventory for a
  36K judgment
• Grocers Supply sued Intercity won return of
  collateral plus 24K in damages. Why?
• Intercity released levy Grocers Supply gave the
  inventory back to Grocery Store
• Intercity What should we do now?
• Pessimist Intercity cant collect
• Optimist Grocers Supply had right to property
  only for sale
• 5. How do we raise it? Motion to set aside
  earlier judgment for fraud? Declaratory judgment
  action?

600K

Grocers Supply
63
Problem 26.5, page 444
36K

• Intercity levied on Grocery Store inventory for a
  36K judgment
• Grocers Supply sued Intercity won return of
  collateral plus 24K in damages. Why?
• Intercity released levy Grocers Supply gave the
  inventory back to Grocery Store
• Intercity What should we do now?
• Pessimist Intercity cant collect
• Optimist Grocers Supply had right to property
  only for sale
• 5. How do we raise it? Motion to set aside
  earlier judgment for fraud? Declaratory judgment
  action?

600K

Grocers Supply
64
Problem 26.5, page 444
36K

• Intercity levied on Grocery Store inventory for a
  36K judgment
• Grocers Supply sued Intercity won return of
  collateral plus 24K in damages. Why?
• Intercity released levy Grocers Supply gave the
  inventory back to Grocery Store
• Intercity What should we do now?
• Pessimist Intercity cant collect
• Optimist Grocers Supply had right to property
  only for sale
• 5. How do we raise it? Motion to set aside
  earlier judgment for fraud? Declaratory judgment
  action?

600K

Grocers Supply
65
Problem 26.5, page 444
36K

• Intercity levied on Grocery Store inventory for a
  36K judgment
• Grocers Supply sued Intercity won return of
  collateral plus 24K in damages. Why?
• Intercity released levy Grocers Supply gave the
  inventory back to Grocery Store
• Intercity What should we do now?
• Pessimist Intercity cant collect
• Optimist Grocers Supply had right to property
  only for sale
• 5. How do we raise it? Motion to set aside
  earlier judgment for fraud? Declaratory judgment
  action?

600K

Grocers Supply
66
Problem 26.5, page 444
36K

• Intercity levied on Grocery Store inventory for a
  36K judgment
• Grocers Supply sued Intercity won return of
  collateral plus 24K in damages. Why?
• Intercity released levy Grocers Supply gave the
  inventory back to Grocery Store
• Intercity What should we do now?
• Pessimist Intercity cant collect
• Optimist Grocers Supply had right to property
  only for sale
• 5. How do we raise it? Motion to set aside
  earlier judgment for fraud? Declaratory judgment
  action?

600K

Grocers Supply
67
Problem 26.5, page 444
36K

• Intercity levied on Grocery Store inventory for a
  36K judgment
• Grocers Supply sued Intercity won return of
  collateral plus 24K in damages. Why?
• Intercity released levy Grocers Supply gave the
  inventory back to Grocery Store
• Intercity What should we do now?
• Pessimist Intercity cant collect
• Optimist Grocers Supply had right to property
  only for sale
• 5. How do we raise it? Dont levy. Motion to
  set aside earlier judgment for fraud?
  Declaratory judgment action?

600K

Grocers Supply
68
A stay without bankruptcy
Creditor
Creditor
Debtor
Creditor
Creditor
Creditor
Creditor

69
A stay without bankruptcy
Problem Debtor is in general default wants to
prevent levies while negotiating with creditors
Creditor
Creditor
Debtor
Creditor
Creditor
Creditor
Creditor

70
A stay without bankruptcy
Problem Debtor is in general default wants to
prevent levies while negotiating with creditors
Creditor
Creditor
Debtor
Creditor
Creditor
Creditor
Creditor

71
A stay without bankruptcy
Problem Debtor is in general default wants to
prevent levies while negotiating with creditors
Creditor
Creditor
Debtor
Creditor
Creditor

• Solution Debtor grants a SI to CMA as trustee
  for unsecureds

Creditor
Creditor

72
A stay without bankruptcy
Credit Management Association, Trustee
Problem Debtor is in general default wants to
prevent levies while negotiating with creditors
SI
Creditor
Creditor
Debtor
Creditor
Creditor

• Solution Debtor grants a SI to CMA as trustee
  for unsecureds

Creditor
Creditor

73
A stay without bankruptcy
Credit Management Association, Trustee
Problem Debtor is in general default wants to
prevent levies while negotiating with creditors
SI
Creditor
Creditor
Debtor
Creditor
Creditor

• Solution Debtor grants a SI to CMA as trustee
  for unsecureds

Creditor
Creditor

• If an unsecured levies, CMA demands property from
  sheriff, then gives it back to Debtor
• 50 levies, 4-5 rulings by the courts, debtors won
  all 50. This is a stay without the filing of a
  bankruptcy
• This stay can continue indefinitely, even after
  making deal

74
A stay without bankruptcy
Credit Management Association, Trustee
Problem Debtor is in general default wants to
prevent levies while negotiating with creditors
SI
Creditor
Creditor
Debtor
Creditor
Creditor

• Solution Debtor grants a SI to CMA as trustee
  for unsecureds

Creditor
Creditor

• If an unsecured levies, CMA demands property from
  sheriff, then gives it back to Debtor
• 50 levies, 4-5 rulings by the courts, debtors won
  all 50. This is a stay without the filing of a
  bankruptcy
• This stay can continue indefinitely, even after
  making deal

75
A stay without bankruptcy
Credit Management Association, Trustee
Problem Debtor is in general default wants to
prevent levies while negotiating with creditors
SI
Creditor
Creditor
Debtor
Creditor
Creditor

• Solution Debtor grants a SI to CMA as trustee
  for unsecureds

Creditor
Creditor

• If an unsecured levies, CMA demands property from
  sheriff, then gives it back to Debtor
• 50 levies, 4-5 rulings by the courts, debtors won
  all 50. This is a stay without the filing of a
  bankruptcy
• This stay can continue indefinitely, even after
  making deal

76
A stay without bankruptcy
Credit Management Association, Trustee
Problem Debtor is in general default wants to
prevent levies while negotiating with creditors
SI
Creditor
Creditor
Debtor
Creditor
Creditor

• Solution Debtor grants a SI to CMA as trustee
  for unsecureds

Creditor
Creditor

• If an unsecured levies, CMA demands property from
  sheriff, then gives it back to Debtor
• 50 levies, 4-5 rulings by the courts, debtors won
  all 50. This is a stay without the filing of a
  bankruptcy
• How long can this stay last?

77
A stay without bankruptcy
Credit Management Association, Trustee
Problem Debtor is in general default wants to
prevent levies while negotiating with creditors
SI
Creditor
Creditor
Debtor
Creditor
Creditor

• Solution Debtor grants a SI to CMA as trustee
  for unsecureds

Creditor
Creditor

• If an unsecured levies, CMA demands property from
  sheriff, then gives it back to Debtor
• 50 levies, 4-5 rulings by the courts, debtors won
  all 50. This is a stay without the filing of a
  bankruptcy
• How long can this stay last? Even after parties
  make a deal!

78
Problem 26.6, page 445
Property taxes have priority over preexisting
liens
90K
90K
79
Problem 26.6, page 445
Property taxes have priority over preexisting
liens
90K
90K
2K
80
Problem 26.6, page 445

• Property taxes have priority over preexisting
  liens
• If the state forecloses its property tax lien,
  what effect on Fidelitys mortgage?

90K
90K
2K
81
Problem 26.6, page 445

• Property taxes have priority over preexisting
  liens
• If the state forecloses its property tax lien,
  what effect on Fidelitys mortgage?
• Mortgage is discharged

90K
90K
90K
2K
Before
After
82
Problem 26.6, page 445
Property taxes have priority over preexisting
liens a. If the state forecloses its property tax
lien, what effect on Fidelitys mortgage?
Mortgage is discharged b. How can Fidelity
self-protect during foreclosure?
90K
90K
90K
2K
Before
After
83
Problem 26.6, page 445
Property taxes have priority over preexisting
liens a. If the state forecloses its property tax
lien, what effect on Fidelitys
mortgage? Mortgage is discharged b. How can
Fidelity self-protect during foreclosure? Bid or
pay the tax
90K
90K
90K
90K
2K
Before
After
84
Problem 26.6, page 445
Property taxes have priority over preexisting
liens a. If the state forecloses its property tax
lien, what effect on Fidelitys
mortgage? Mortgage is discharged b. How can
Fidelity self-protect during foreclosure? Bid or
pay the tax
90K
90K
90K
90K
2K
Before
After
Amalgamated Bank v. Superior Court, 57 Cal. Rept.
3d 686 (2007). The banks designated bidder got
stuck in traffic on the way to the foreclosure
sale. Property worth 6.5 million was sold for
2,000. The court confirmed the sale.
85
Problem 26.6, page 445

• Property taxes have priority over preexisting
  liens
• If the state forecloses its property tax lien,
  what effect on Fidelitys mortgage?
• Mortgage is discharged
• b. How can Fidelity self-protect during
  foreclosure? Bid or pay the tax

90K
90K
90K
90K
2K
Before
After
How does Fidelity get its money back?
86
Problem 26.6, page 445

• Property taxes have priority over preexisting
  liens
• If the state forecloses its property tax lien,
  what effect on Fidelitys mortgage?
• Mortgage is discharged
• b. How can Fidelity self-protect during
  foreclosure? Bid or pay the tax

90K
90K
90K
90K
2K
Before
After
How does Fidelity get its money back?
Resale/subrogation?
87
Problem 26.6, page 445

• Property taxes have priority over preexisting
  liens
• If the state forecloses its property tax lien,
  what effect on Fidelitys mortgage?
• Mortgage is discharged
• b. How can Fidelity self-protect during
  foreclosure? Bid or pay the tax

90K
90K
90K
2K
Before
After
How does Fidelity get its money back?
Resale/subrogation? c. What provisions should be
in Fidelitys mortgage?
88
Problem 26.6, page 445
Property taxes have priority over preexisting
liens a. If the state forecloses its property tax
lien, what effect on Fidelitys
mortgage? Mortgage is discharged b. How can
Fidelity self-protect during foreclosure? Bid or
pay the tax
90K
90K
2K
Default
How does Fidelity get its money back?
Resale/subrogation? c. What provisions should be
in Fidelitys mortgage? Failure to pay property
taxes is a default.
89
Problem 26.6, page 445

• Property taxes have priority over preexisting
  liens
• If the state forecloses its property tax lien,
  what effect on Fidelitys mortgage?
• Mortgage is discharged
• b. How can Fidelity self-protect during
  foreclosure? Bid or pay the tax

90K
90K
90K
92K
2K
Default
If tax paid
How does Fidelity get its money back?
Resale/subrogation? c. What provisions should be
in Fidelitys mortgage? Failure to pay property
taxes is a default. Secured may pay the taxes
and add them to the mortgage.
90
Problem 26.6, page 445

• Property taxes have priority over preexisting
  liens
• If the state forecloses its property tax lien,
  what effect on Fidelitys mortgage?
• Mortgage is discharged
• b. How can Fidelity self-protect during
  foreclosure? Bid or pay the tax

90K
90K
2K
With escrow
How does Fidelity get its money back?
Resale/subrogation? c. What provisions should be
in Fidelitys mortgage? Failure to pay property
taxes is a default. Secured may pay the taxes
and add them to the mortgage Debtor must pay
estimated taxes into escrow monthly