Each is generally discussed below and would apply if there is a valid security agreement in place that the debtor has failed to satisfy.
Repossession of Collateral. After default, a secured party may take possession of the collateral and, without removal, may render equipment unusable and dispose of collateral on a debtor’s premises under section 47-9610, which the secured party can do pursuant to judicial process or without judicial process if it proceeds without breach of the peace. See A.R.S. § 47-9609 (secured party’s right to take possession after default).
If a security agreement covers goods that are or become fixtures, the secured party may proceed under Article 6. If its security interest in fixtures has priority over all owners and encumbrancers of the real property, then the secured party, after default, may remove the collateral from the real property but must promptly reimburse any encumbrancer or owner of the real property, other than the debtor, for the cost of repair of any physical injury caused by the removal (but not diminution in value of the real property caused by the absence of the goods removed or by any necessity of replacing them). See A.R.S. § 47-9604 (procedure if security agreement covers real property or fixtures). A person entitled to such reimbursement may refuse permission to remove the collateral until the secured party gives adequate assurance of reimbursement. See Id.
Disposition of Collateral. After default, a secured party may sell, lease, license or otherwise dispose of any or all of the collateral in its present condition or following any commercially reasonable preparation or processing. Every aspect of disposing of the collateral – including the method, manner, time place and other terms – must be commercial reasonable, and the disposition includes the warranties relating to title, possession, quiet enjoyment and the like unless sufficiently disclaimed or modified. See A.R.S. § 47-9610 (disposition of collateral after default).
If commercially reasonable, the secured party may dispose of the collateral by public or private proceedings, by one or more contracts, as a unit or in parcels, and at any time and place on any terms. See Id. See also A.R.S. § 47-9627 (determination of whether conduct was commercially reasonable). The secured party may purchase the collateral at a public disposition, or at a private disposition only if the collateral is of a kind customarily sold on a recognized market or the subject of widely distributed standard price quotations. See A.R.S. § 47-9610.
Notification of Disposition of Collateral. Before the secured party can dispose of the collateral under § 47-9610, the secured party must send a reasonable authenticated notification of disposition to (1) the debtor, (2) any secondary obligor, and (3) if the collateral is non-consumer goods, (a) any other person from which the secured party has received, before the notification date, an authenticated notification of a claim of an interest in the collateral (b) any other secured party or lienholder that, ten days before the notification date, held a security interest in or other lien on the collateral perfected by the filing of a financial statement that (i) identified the collateral, (ii) was indexed under the debtor’s name as of that date and (iii) was filed in the office in which to file a financing statement against the debtor covering the collateral as of that date, and (c) any other secured party that, ten days before the notification date, held a security interest in the collateral perfected by compliance with a statute, regulation or treaty described in section 47-9311(A). See A.R.S. § 47-9611 (notification before disposition of collateral).
Whether a notification is sent within a reasonable time is a question of fact, but, in a transaction other than a consumer transaction, a notification of disposition sent after default and ten days or more before the earliest time of disposition set forth in the notification is deemed sent within a reasonable time before the disposition. See A.R.S. § 47-9612 (timeliness of notification before disposition of collateral). Either § 47-9613 or -9614 dictates the contents and form of the requisite notification before disposition of the collateral. See A.R.S. § 47-9613 (contents and form of notification before disposition of collateral; general); A.R.S. § 47-9614 (contents and form of notification before disposition of collateral; consumer goods transaction).
Notification is not required if the collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market. See A.R.S. § 47-9611.
A debtor or secondary obligor may waive the right to notification of disposition of the collateral under § 47-9611, but only by an agreement to that effect entered into and authenticated after default. See A.R.S. § 47-9624 (waiver).
Application of Proceeds from Disposition of Collateral. A secured party does not have to apply the non-cash proceeds of a disposition under § 47-9610 unless the failure to do so would be commercially unreasonable (and if the secured party chooses to do so, it must be done in a commercially reasonable manner), but a secured party must apply the cash proceeds of a disposition under § 47-9610 in the following order:
See A.R.S. § 47-9615 (application of proceeds of disposition; liability for deficiency and right to surplus).
Rights of Collateral Transferee. A secured party’s disposition of the collateral after default (a) transfers to a transferee for value all of the debtor’s rights in the collateral, (b) discharges the security interest under which the disposition is made, and (c) discharges any subordinate security interest or other subordinate lien. A transferee that acts in good faith takes free of these rights and interests even if the secured party fails to comply with Article 6. See A.R.S. § 47-9617 (rights of transferee of collateral).
Accepting Collateral. A secured party may accept the collateral in full satisfaction or partial satisfaction (but not in a consumer transaction) of the obligation it secures if:
See A.R.S. § 47-9620 (acceptance of collateral in full or partial satisfaction of obligation; compulsory disposition of collateral).
A purported or apparent acceptance of the collateral is ineffective unless the secured party consents to the acceptance in an authenticated record or sends a proposal to the debtor and the above conditions are met. See Id.
A debtor consents to an acceptance of the collateral in partial satisfaction of the obligation it secures only if the debtor agrees to the terms of the acceptance in a record authenticated after default.
A debtor consents to an acceptance of the collateral in full satisfaction of the obligation it secures only if the debtor agrees to the terms of the acceptance in a record authenticated after default or the secured party:
To be effective, a notification of objection must be received by the secured party:
A secured party that has taken possession of the collateral must dispose of the collateral pursuant to § 47-9610 if (a) 60% of the cash price has been paid in the case of a purchase money security interest in consumer goods or (b) 60% of the principal amount of the obligation secured has been paid in the case of a nonpurchase money security interest in consumer goods, and in such event the secured party must dispose of the collateral within ninety days after taking possession or within any longer period to which the debtor and all secondary obligors have agreed in an agreement to that effect entered into and authenticated after default. See Id.
Notification of Proposal to Accept Collateral. A secured party that wants to accept collateral in full or partial satisfaction of the obligation it secures must send its proposal to:
A secured party that wants to accept collateral in partial satisfaction of the obligation it secures must also send its proposal to any secondary obligor in addition to above persons. See Id.
Effect of Accepting Collateral. A secured party's acceptance of collateral in full or partial satisfaction of the obligation it secures:
Redeeming Collateral. A debtor, any secondary obligor or any other secured party or lienholder may redeem the collateral by fulfilling all obligations secured by the collateral and the reasonable expenses and attorney fees described in § 47-9615(A)(1), which may occur any time before a secured party has:
Except in a consumer goods transaction, a debtor or secondary obligor may waive the right to redeem collateral under § 47-9623 only by an agreement to that effect entered into and authenticated after default. See A.R.S. § 47-9624 (waiver).
Liability of Secured Party. A debtor, obligor or other security interest or lienholder may recover damages against a secured party that fails to comply with Chapter 9. See A.R.S. § 47-9625 (remedies for secured party’s failure to comply with chapter). But see A.R.S. § 47-9628 (nonliability and limitation on liability of secured party; liability of secondary obligor).
If a secured party cannot retake possession of the collateral without breaching the peace, then the secured party may reduce a claim to judgment, foreclose or otherwise enforce the claim or security interest by any available judicial procedure. See A.R.S. § 47-9601 (rights after default; judicial enforcement).
If a secured party has reduced its claim to judgment, the lien of any levy that may be made on the collateral by virtue of an execution based on the judgment relates back to the earliest of the date of perfection of the security interest in the collateral or the date of filing a financing statement covering the collateral. See Id. A sale pursuant to an execution is a foreclosure of the security interest by judicial procedure, and a secured party may purchase at the sale and thereafter hold the collateral free of any other requirements of Chapter 9. See Id.
Given the UCC technicalities and complexities, the best option, if available, is likely a strict foreclosure performed by an attorney experienced in UCC sales.
All Rights Reserved | Robert D. Mitchell