Texas Commercial Law Firm
Foreclosure
C. “Self-help” Remedies on Default
1. Defining default. Although Article 9 clearly requires a “default” prior to a secured creditor taking any action the word “default” is not defined in Article 9. Consequently, we must look both to the terms of the agreement between the parties and Texas law in evaluating whether a default has occurred. In this respect, in defining default and determining the requirements for notices of right to cure, intent to accelerate and acceleration, the law relating to real property foreclosures and personal property foreclosures in Texas is virtually identical. Consequently, please refer to §L.3 above concerning Texas law relating to default and acceleration.
2. Self-help. Upon default, a creditor may seize the collateral (subject to UCC and state law restrictions against trespass and breach of peace) and either keep the collateral in satisfaction of the debt or resell the collateral and apply the proceeds to the debt. In the alternative, the creditor may sue on the note and obtain a judgment and proceed by execution and levy. Many creditors prefer to use self-help and foreclose under the UCC whenever possible because it allows them to realize upon collateral sooner and less expensively than proceeding judicially.
When proceeding non-judicially, the creditor must first obtain possession of the collateral. A secured party has the following self-help alternatives: Section 9-503 states:
unless otherwise agreed a secured party has on default the right to take possession of the collateral. In taking possession a secured party may proceed without judicial process if this can be done without breach of the peace or may proceed by action. If the security agreement so provides the secured party may require the debtor to a place to be designated by the secured party which is reasonably convenient to both parties. Without removal a secured party may render equipment unusable, and may dispose of collateral on the debtor's premises under §9-504.
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