UCC Remedies for Secured Creditors

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:

1. the reasonable expenses of retaking, holding, preparing for disposition, processing and disposing, and, to the extent provided for by agreement and not prohibited by law, reasonable attorney fees and legal expenses incurred by the secured party;
2. the satisfaction of obligations secured by the security interest under which the disposition is made;
3. the satisfaction of obligations secured by any subordinate security interest in or other subordinate lien on the collateral if (a) the secured party receives from the holder of the subordinate security interest or other lien an authenticated demand for proceeds before distribution of the proceeds is completed; and (b) in a case in which a consignor has an interest in the collateral, the subordinate security interest or other lien is senior to the interest of the consignor;
4. a secured party that is a consignor of the collateral if the secured party receives from the consignor an authenticated demand for proceeds before distribution of the proceeds is completed; and
5. pay a debtor any surplus.

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:

• the debtor consents to the acceptance;
• the secured party does not receive a timely notification of objection to the proposal authenticated by (a) a person to which the secured party was required to send a proposal under § 47-9621 or (b) any other person, other than the debtor, holding an interest in the collateral subordinate to the security interest that is the subject of the proposal;
• if the collateral is consumer goods, the collateral is not in the possession of the debtor when the debtor consents to the acceptance; and
• the secured party is not required to dispose of the collateral or the debtor waives the requirement pursuant to § 47-9624.

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:

• sends to the debtor after default a proposal that is unconditional or subject only to a condition that collateral not in the possession of the secured party be preserved or maintained;
• proposes to accept collateral in full satisfaction of the obligation it secures in the proposal; and
• does not receive a notification of objection authenticated by the debtor within twenty days after the proposal is sent. See Id.  

To be effective, a notification of objection must be received by the secured party:

• in the case of a person to which the proposal was sent, within twenty days after notification was sent to that person; and
• in other cases, (a) within twenty days after the last notification was sent, or (b) if a notification was not sent, before the debtor consents to the acceptance. See Id.

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:

• any person from which the secured party has received, before the debtor consented to the acceptance, an authenticated notification of a claim of an interest in the collateral;
• any other secured party or lienholder that, ten days before the debtor consented to the acceptance, held a security interest in or other lien on the collateral perfected by the filing of a financing statement that (a) identified the collateral, (b) was indexed under the debtor's name as of that date, and (c) was filed in the office or offices in which to file a financing statement against the debtor covering the collateral as of that date; and
• any other secured party that, ten days before the debtor consented to the acceptance, 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. § 47-9621 (notification of proposal to accept collateral). 

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:

• discharges the obligation to the extent consented to by the debtor,
• transfers to the secured party all of a debtor's rights in the collateral,
• discharges the security interest that is the subject of the debtor's consent and any subordinate security interest or other subordinate lien, and
• terminates any other subordinate interest, even if the secured party fails to comply with Chapter 9. See A.R.S. § 47-9622 (effect of acceptance of collateral).

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:

• collected the collateral under § 47-9607,
• disposed of the collateral or entered into a contract for its disposition under § 47-9610, or
• accepted the collateral in full or partial satisfaction of the obligation it secures under § 47-9622. See A.R.S. § 47-9623 (right to redeem collateral). 

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.