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[Leao]

Just want to check my understanding as it applies to a car repo in my state.

Section (a) says the creditor who repo's a car has to pay the debtor any surplus, and the debtor is on the hook for any deficiency?

Section (b) says that if the creditor sells off their claim of a deficiency, they don't have to pay any surplus and the debtor is off the hook for any claim of a deficiency?


--------

The statute:

Application of proceeds of collection or enforcement; liability for deficiency and right to surplus

(a)  Application of proceeds, surplus, and deficiency if obligation secured.  If a security interest or agricultural lien secures payment or performance of an obligation, the following rules apply:

   (1)  A secured party shall apply or pay over for application the cash proceeds of collection or enforcement under ------ in the following order to:

         (A)  the reasonable expenses of collection and enforcement and, to the extent provided for by agreement and not prohibited by law,
               reasonable attorney's fees and legal expenses incurred by the secured party;

         (B)  the satisfaction of obligations secured by the security interest or agricultural lien under which the collection or enforcement is made;
               and

         (C)  the satisfaction of obligations secured by any subordinate security interest in or lien on the collateral subject to the security interest or
               agricultural lien under which the collection or enforcement is made if the secured party receives an authenticated demand for proceeds
               before distribution of the proceeds is completed.

   (2)  If requested by a secured party, a holder of a subordinate security interest or lien shall furnish reasonable proof of the interest or
         lien within a reasonable time.  Unless the holder complies, the secured party need not comply with the holder's demand under
         paragraph (1)(C).

   (3)  A secured party need not apply or pay over for application noncash proceeds of collection and enforcement under ----- unless the
         failure to do so would be commercially unreasonable.  A secured party that applies or pays over for application noncash proceeds shall do
         so in a commercially reasonable manner.

   (4)  A secured party shall account to and pay a debtor for any surplus, and the obligor is liable for any deficiency.


(b)  No surplus or deficiency in sales of certain rights to payment.  If the underlying transaction is a sale of accounts, chattel paper, payment intangibles, or promissory notes, the debtor is not entitled to any surplus, and the obligor is not liable for any deficiency.

[NotBonJovi]

I think dls7406 would be a good one to help sort you out on this, but I'm *guessing* that (a) refers to secured property whereas (b) refers to various unsecured goods?

Eh. I tried. 

It does seem to be a contradiction, that's the only way I can reconcile it in my head...

[dls7406]

Well, since you prompted.

In short (b) does not apply at all to you if you are dealing with a car.

I think you are just having a minor grammar stutter as the misses calls it.

Dealing only with (b):

First, to make it simple lets start with "rights to payment" in the first sentence. It refers to a group of "things" in the statute. It specifically lists those things. "Rights to payment" just means that you bought "paper" of some sort (unlike your car) with the proceeds of the loan. If thats the case, then when they "repo" the paper and sell it, it doesn't matter if it sells for a profit or loss- you are square.

Now reread the first sentence. To wit; 

(b)No surplus or deficiency in sales of certain [paper].If the underlying transaction is a sale of [certain paper] the debtor ,,,, and the obligor [are square].

ETA>> Rereading it it seems that "debtor" and "obligor"  who would commonly be the same person, are not here, and do not refer to the person seeking to enforce the security interest in the paper.

Probably TMI, but "obligor" would refer to the person required by the "paper" to make payments to the holder in due course of that paper, and "debtor" would refer to the person that became the "holder in due course" through the "underlying transaction" (they bought it with the loan/ took a loan against it). The statute basically says that the person who made the loan gets lucky if he makes a profit on the paper and the person paying the bill (innocent in this event and not responsible for the debtors default) does not have to "make up" the loss caused by the debtor's default.

In english:
Debtor= guy that defaulted on the paper>> won't gain by default.
Obligor=makes the payments required by the "paper">> won't be hurt by debtor's actions.
Unmentioned party= made the loan, "repoed" paper>> keeps profit, but could sue for loss.

[NotBonJovi]

Yeah. That's what I meant. Well, what I was TRYING to say.

Really!!

I was actually thinking (b) sounded like the that JDB's acquire, lol.

[dls7406]

I think dls7406 would be a good one to help sort you out on this, but I'm *guessing* that (a) refers to secured property whereas (b) refers to various unsecured goods?

Eh. I tried. 

It does seem to be a contradiction, that's the only way I can reconcile it in my head...

Not unsecured. Secured by paper, or "right to payment". Think of the bank that gives a mortgage. What asset does it create by giving away money? A mortgage. The mortgage is "paper".

On a mobile home that is called "chattel paper". How does the bank get more money for the next loan? It borrows against the paper. (Ignore selling, fractional banking etc etc. for sake of discussion).

That loan against the paper is what (b) contemplates going default.

[NotBonJovi]

Ohhhhhhhhhh.  Now I get it....

Show off!   

[dls7406]

And now for my next trick,,,,

I shall run through Somalia with a Hamburger strapped to my back.

On second thought, I'll just put it in 6 words or less:

(evidence of) right to payment= ~mortgage

[Leao]

My state considers auto contracts "tangible chattel paper" just like a mortgage. I think its in the UCC.

The part about it being "chattel paper" is what made me think that the statute applies to a defaulted auto loan/contract, and that when the finance company sells "the rights to payment" then section (b) kicks in, since a deficiency is the remaining right to payment on an auto contract/loan.

But like I said, I'm thick headed with statute, it just doesn't compute half the time for some reason. I'm just trying to find something that nulls JDB claim of an auto deficiency - something solid and affirmative because the SOL may not be up yet.

The finance co. didn't notify me of the sale, or how much the deficit would be/is, etc. They'd have to produce all that paper, the repo agent is required to be licensed, they are required to notify you of the amount and their claim to a deficiency.

I'd just rather have an anvil ready, something that kills their claim and may even qualify as misrepresenting a debt if I can show there is no existence of a valid deficiency.

The first I heard of a deficiency was 4 years later when the first JDB started dunning for it.

[dls7406]

  (b) still doesn't apply.

 Notice that it doesn't say "If the underlying transaction is chattel paper"

It says:

"If the underlying transaction is a sale of chattel paper"

In your case the underlying transaction would be the sale of a car that created chattel paper. Not a sale of that paper.

[Leao]

  (b) still doesn't apply.

Ahh ok, hrrmm.. I guess the finance company not following through all the legal repo procedures will have to be enough.

[Kitten]

Another way of looking at it:
JDB buys loan deficiencies from the lender, and finances the purchase with lender #2. When lender #2 forecloses on the JDB's financed portfolio, they don't have to pay the JDB any overage, and the JDB doesn't owe them any deficiency.

Hey, that might be a good business plan. Buy a portfolio with other peoples' money. Send out one round of letters, collect full value on the 5% that pay. Pay the lender 5% of the loan, and let them take custody of the other 95% of the portfolio.