Question

Bill defaulted on a loan to Bank which financed the Bill’s auto. Bank was listed as a lien holder on the auto title. Who, if anyone, gets paid prior to Bank if the Bank forecloses its lien by selling the auto?

a. The auto repair shop that worked on the car prior to sale.

b.Any creditor of Bill’s owed more than the bank.

c.A judgment creditor of Bill’s.

d. All of the above.

An IOU fails the test of negotiability for which reason(s)?

a.The IOU does not have to be in writing.

b.The IOU is not an unconditional promise to pay.

c.IOUs do not have to be signed by the maker or drawer.

d.All of the above.

Which option(s) are UNavailable for the secured party to pursue when the debtor defaults?

a.Threaten legal action even when not planning to do so.

b.Follow the debtor onto the debtor’s property, threaten the debtor with a pistol, then take the collateral.

c.Sell collateral for whatever it will bring and keep any extra amount owed as compensation for being put to the trouble of conducting the sale.

d. b. and c.

Answer 1

Ans 1. Correct option is D

• Lien means the legal right of a person to hold the property belonging to another person to secure the repayment of the debt. It is granted by the owner of the property and acquired by the creditor. Hence in this case bank is the Lien Holder i.e. creditor and Bill is the actual owner of the auto who has granted legal right to the bank for his own property.
• Foreclosure means a legal process wherein the creditor/lender/lien-holder has a right to repossess or sell property of the borrower for the purpose of repayment of the debt related to that property.
• In this case the bank Forecloses its lien by selling Bill's auto. When the lien is foreclosed the creditor get the money on the basis of Lien priority rule that says First in Time, First in Right i.e. an earlier recorded interest has a priority over later recorded interest. But yes, all will receive the payment if the recovered amount allows so.

Ans 2. Correct option is D.

• There is six elements of negotiability and if a person fails to fulfill in any of the 6 elements, then IOU becomes Non Negotiable
• The six elements are: a)In writing b)Signed by maker or drawer c)Unconditional promise to pay d)Fixed amount of money e)Payable on demand or at definite time f)Payable to the bearer

Ans 3. Correct option is D.

The debtor cannot be followed on the debtor's property and threatened with a pistol. The lender has a right to sell the collateral and recover the amount of dues + attorney's fees + legal charges and if still some dues are left debtor is liable for that and if any surplus is left then the debtor will get it back. Creditor cannot keep the excess amount .