Here is a nicely written article on debt collection by a NJ attorney. I have been handling this type of work since 1989 in New York State for lenders, mortgage companies, lessors, and a wide variety of businesses and individuals. This basically falls under the category of law called Creditors Rights. The “art” side of this is how to determine the best strategic approach and whether you can seize collateral by resorting to self-help (without breaching the peace and without an order of seizure from a court).
Thursday, August 4, 2011
Print | E-mail Last year I lent money to an acquaintance who owns a machine shop in New Jersey. He gave me a promissory note and a security agreement signed by the business, and a Uniform Commercial Code Financing Statement, which was filed in New Jersey. He has stopped making payments on the note. Can I take the collateral and sell it?
You have made a secured loan to your friend’s business. A promissory note is a borrower’s promise to repay an amount certain using a schedule of payments, on a date certain, or when the holder of the note demands repayment. The note may require the borrower to pay interest, and may contain other conditions that, if not met, would constitute an event of default. By giving you a security agreement, the business granted you a security interest and lien on certain collateral identified in the document. The filed Uniform Commercial Code Financing Statement “perfected” your lien on the collateral.
Your right to repossess the collateral depends on the language contained in the promissory note and the security agreement. First, review the promissory note to see if written notice must be given regarding non-payment. The business might have the right to make late payments within a certain period of time following written notice. If the business does not cure the non-payment, or if you have the right to declare an event of default, you may also have the right to take control of the collateral without having to go to court, pursuant to the security agreement. If you can take the collateral without “breaching the peace,” you may repossess the collateral without court intervention. Article 9 of the Uniform Commercial Code enables you to sell the collateral at a “public” or a “private” sale. Sale proceeds can be used to cover your legal fees and costs associated with repossessing and selling the collateral, to repay others who have superior liens, and to reimburse you for amounts due from borrower. Keep in mind that, if challenged, you will have the burden of demonstrating that you acted in a commercially reasonable manner in the method, manner, time, place and other terms pertaining to a public or private sale.
While using the Article 9 non-judicial foreclosure procedure can be a relatively quick and inexpensive remedy (because court proceedings can be avoided, if the borrower cooperates), there are plenty of pitfalls and obstacles to avoid. You should retain a competent corporate attorney to help you through this process.
By Barry M. Schwartz, Esq.
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