Punishing Creditor Misbehavior in U.C.C. Article 9 Foreclosure Sales

Punishing Creditor Misbehavior in U.C.C. Article 9 Foreclosure Sales

 
In the current recessionary climate, more and more secured creditors are faced with the prospect of defaults by their debtors and the need to proceed with foreclosure of their security interests. Article 9 of the Uniform Commercial Code requires secured parties undertaking foreclosure sales to follow certain procedures or risk losing their ability to receive a deficiency judgment against the debtor.
   
Professor Livingston writes: In the current recessionary climate, more and more secured creditors are faced with the prospect of defaults by their debtors and the need to proceed with foreclosure of their security interests. Article 9 of the Uniform Commercial Code requires secured parties undertaking foreclosure sales to follow certain procedures or risk losing their ability to receive a deficiency judgment against the debtor. First, the secured party must give reasonable notification of the impending sale to the debtor and certain other parties. Second, the creditor must conduct a commercially reasonably foreclosure sale. Both requirements are designed to protect the debtors interest in ensuring that the collateral sells for a reasonable price, thus minimizing the extent of the deficiency owed by the debtor.

To satisfy the reasonable notification requirement, the secured party must (1) send a reasonable authenticated notification of disposition (2) to the statutorily specified individuals (3) in a timely manner. In addition to sending reasonable notification of the disposition, the secured party must make a commercially reasonable disposition of the collateral. Article 9 specifies that [e]very aspect of a disposition, including the method, manner, time, place, and other terms, must be commercially reasonable. For further discussion of the requirements of pre-sale notification and a commercially reasonable disposition, see Margit Livingston, Expert Commentary: Conducting Foreclosure Sales under U.C.C. Article 9 (available on LexisNexis at 2008 Emerging Issues 2743).

Secured parties who fail to adhere to these requirements are subject to severe penalties, including loss of any chance to pursue a deficiency against a debtor and actual and statutory damages. This commentary will explore the loss-of-deficiency penalty in detail and offer suggestions for avoiding it.
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