A secured transaction is a transaction that is secured by real or intangible assets. When a borrower defaults on a loan with a secured real asset attached, a lender may be able to conduct a public or private sale of the asset if the agreement falls under the Uniform Commercial Code, which is known as a UCC Sale or Article 9 Sale.
Selling collateral is a reliable way for lenders to protect their assets, but for many lenders, especially those conducting a sale for the first time, the process can seem overwhelming. Understanding how UCC sales are defined and enacted gives lenders a head start when beginning this process.
What is a UCC Article 9 Sale?
The Uniform Commercial Code, or UCC, is the national legal framework that governs commercial business transactions. Like many national codes, the UCC is not federal law, and individual states are not bound to it. However, fifty states and the District of Columbia uniformly adopt the framework for official laws to ensure that laws can be governed securely and consistently across state lines, sometimes with additional or fewer provisions for each state.
The Uniform Commercial Code is divided into eleven articles that comprehensively govern all areas of commerce, including leases, sales, bank deposits, collections, letters of credit, bulk sales, and other areas. Article 9 of the UCC specifically covers secured transactions.
Secured transactions can have a wide variety of real collateral, such as real estate, automobiles, furniture, equipment, and others. Because mortgages, deeds of trusts, and foreclosures are types of secured transactions, with the property behaving as collateral, the sale of a mortgaged property is governed by laws under Article 9.
A UCC sale, or Article 9 sale, is the public or private nonjudicial auction of secured real collateral after compliance with state notice requirements. For lenders enacting a foreclosure, a UCC property sale is the final stage in the process before asset recovery.
Related Article: UCC-1 Filings: What Every Lender Should Know
How to Conduct a UCC-9 Sale
UCC sales and asset recovery can be a complex task for a lender enacting it for the first time.
Issue Notice of Sale: Before every UCC sale, the lender must give reasonable notice. This gives proper notice to the debtor, as well as any potential buyers. What constitutes “reasonable notice” is typically clearly defined by state law to avoid any nuance in disputes. In a foreclosure, states dictate how long the Notice of Sale stage lasts, what notices should be sent and to which parties.
Determine Commercial Reasonableness: Before a lender can conduct the UCC sale, they must determine that a sale is a reasonable solution to satisfying the default. Commercial reasonableness is not strictly defined, but factors including the sale price of the collateral, the manner of the sale, and the type of the collateral itself can be factors that a court considers when deciding the reasonableness of a UCC sale.
In a foreclosure, repossession of the property itself by the lender usually stands as full or partial satisfaction of the debt.
Conduct Sale and Apply Proceeds: After the sale has been conducted publicly or privately, the proceeds are applied to any costs and fees associated with enacting the sale and then applied to the collateral. Proceeds then go to any junior interests and then the lender.
Best Trustee for Conducting a UCC Article 9 Sale
Lenders that find themselves faced with the task of conducting a UCC sale can rely on Total Lender Solutions to conduct the sale in a professional and reasonable manner. Total Lender Solutions has a proven track record of successful sales, ensuring that you and your team’s assets are protected.
At Total Lender Solutions, we advocate for lenders looking to maximize recoveries on defaulted loans. For over 15 years, our team of highly experienced real estate professionals and legal experts has transformed complicated processes into clear resolutions for institutional and private lenders. We work as a vigorous extension of your team to provide comprehensive solutions and seamless communication, from pre-foreclosure and notice of default to the final sale phase. Our dedication and persistence when it comes to the foreclosure process ensure that our clients feel confident in reaching a successful outcome. Contact us today.
