By Stephen J. Muhonen, Creditor’s Rights / Collections Attorney, Racine Olson, PLLP
One of the most important priorities for a creditor or lender when entering into a contract with a borrower or debtor is ensuring they have a perfected security interest in the property that is being purchased. The purpose of the security interest is to provide notice to the world of the encumbrance and to allow for recovery of the collateral in the event of default. For real property (homes, land, etc.), this means recording with the county recorder’s office a mortgage or deed of trust. See generally Idaho Code §55-811. For motor vehicles this means providing notice of the creditor’s lien by having his/her/its name placed on the title. See Idaho Code §49-510. For the perfection of a security interest in goods, the creditor can file a Uniform Commercial Code (UCC) finance statement per Idaho Code §28-12-501 et. cet.
When it comes to repossession of collateral, as a creditor it is important to keep in mind the terms in the contract. Following and abiding by the express terms of a contract, especially as they relate to notice, default and repossession rights, is critical to enforcement of the contract. Idaho courts are generally inclined to enforce the terms of a contract that is knowingly and voluntarily entered into, even if such enforcement does not seem fair.
Contract aside, Idaho law does provide that a party may repossess collateral it has a security interest in. For this to happen, first there must be a default or breach of contract by the debtor. Following the breach (remembering to abide by the express terms of the contract), the secured party may exercise self-help and take possession of the collateral. If the collateral is not removed from premises wherein it is located, the secured party may render the equipment unusable and dispose of the collateral that is on the debtor’s premises. Additionally, if so agreed, a secured party may require a debtor to assemble the collateral and make it available to the creditor at a location reasonably convenient to both parties. These rights and privileges granted to a creditor or secured party regarding self-help are only available so long as the creditor does not breach the peace in the attempt to repossess the collateral. If the collateral cannot be repossessed without a breach of the peace, the alternative for the secured party is to obtain the property through judicial process. See Idaho Code §28-9-609.
The goal of judicial process, ultimately, is to obtain a court order, requiring the sheriff where the collateral is located, to seize the collateral and if possible, deliver it to the secured party. Once the collateral is back in the creditor’s possession, the collateral can then be sold in a commercially reasonable manner, with the proceeds applied to the amounts due and owing by the debtor. In the event the sale proceeds are insufficient to cover the amounts due by the debtor, the creditor can then seek a deficiency recovery from the debtor.
If you are a creditor seeking assistance in repossessing collateral that you are unable to otherwise repossess without breaching the peace, give Stephen Muhonen at Racine Olson, PLLP, a call at 208-232-6101. You can also email Steve at steve@racineolson.com