Texas Commercial Law Firm
Foreclosure
4. Lender liability under the UCC. As discussed above, lenders and attorneys generally look to Article 9 of the UCC to determine appropriate procedures for repossessing and selling personal property at foreclosure. Specifically, §§9.504 and 9.505 concern the issue of notice as it pertains to public or private sales. Section 9.505(b) provides that the secured party may simply retain the collateral in satisfaction of the debt while §9.505(a) requires the secured party to dispose of the repossessed collateral within 90 days or be liable for conversion. The most important criteria in handling a UCC foreclosure is that all actions taken from the point of repossession, storage of the property, notice, advertisement and conducting the sale be commercially reasonable. International Bank, N.A. v. Morales, 736 S.W.2d 622 (Tex. 1987). Whether a sale is commercially reasonable is a question for fact for the jury regardless of whether the sale was public or private. Boles v. Texas National Bank of Waco, 750 S.W.2d 879 (Tex. Civ. App.--Waco 1988, no writ).
A lender who makes a commercially unreasonable disposition of collateral subjects themselves to a cause of action for breach of contract but not tort liability. Texas National Bank v. Karnes, 717 S.W.2d 901 (Tex. 1986). In Karnes the jury found that the lender fraudulently obtained possession of savings account funds and intentionally concealed withdrawal of funds from the account. Punitive damages were set aside, however, although a breach of contract was found. Id. This position was followed by International Bank, N.A. v. Morales, 736 S.W.2d 622 (Tex. 1987).
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