Olson Burns Lee, P.C. Law Practice

Community Bankers' Advisor

April, 2002 - Vol. 8, No. 1

Page 2

*New N.D.C.C. § 41-09-108 contains expanded notification obligations that must be met by a secured creditor. In addition to properly notifying the debtor and guarantor of an impending liquidation, a secured creditor must also notify any other secured creditor who has a financing statement on file. N.D.C.C. § 41-09-108(3)(d). In plain English, the foreclosing secured party must submit a UCC-11 and notify all other secured parties that show up as having a security interest in the collateral of the impending disposition.

*New N.D.C.C. § 41-09-109 provides for more specific notification that must be given of a proposed disposition of collateral. Notification after default and 10 days before the sale is "reasonable" advance notice of the proposed disposition. N.D.C.C. § 41-09-109(2).

*The Uniform Law version of the UCC has a form of statutory notice to use when giving notice. North Dakota does not use this form, but requires only that certain information be contained in the notice. See N.D.C.C. § 41-09-110. The following is a sample that will meet the statutory obligations:

Notification Before Disposition of Property

To: (Debtor) A/k/a Borrower
Collateral Year Make Serial Number Loan Number oan Date

______________________________________________________________________________________

(Lender) took possession of the property described (above) (in the attached list), in which it was granted a security interest by Borrower under a security agreement dated ____________. Lender will sell said collateral described in a public or private sale, as indicated below.

Public Sale. If this box is checked, we will sell said collateral at public sale. A sale could include a lease or license. The sale will be held as follows:

Date: (must be at least 10 days after notification date)
Time: _____________________________________
Place: _____________________________________

Private Sale. If this box is checked, we will sell said collateral at a private sale sometime after the following date: (date must be at least 10 days after notification date) . A sale could include a lease or license.

The money that we get from the public or private sale (after paying our costs) will reduce the amount Borrower owes. If we get less money than Borrower owes, Borrower will still owe us the difference. If we get more money than Borrower owes, Borrower will get the extra money, unless we must pay it to someone else.

You can get the collateral back at any time before we sell it or have an agreement for sale, by paying Lender, by cash or cashier's check, the full amount you owe (not just the past due payments), including Lender's expenses. The exact amount you must pay is $____________, and must be tendered to the following address

Lender's Name
and Full Address

Borrower is entitled to an accounting of the unpaid indebtedness, and may call us at (701) _____________ or write us at the above address and request a written accounting. Lender will charge Borrower $_______________ (or nothing) for the explanation if we sent you another written explanation of the amount Borrower owes within the last ________ months.

We are sending this notice to the following other people who have an interest in said collateral or who owe money under your agreement:

Date Notice Mailed ______________________

XYZ Lender
By:____________________________
John Smith
Its: ____________________________

*Be aware that even in instances where a secured creditor conducted a liquidation sale of collateral in a commercially reasonable manner, the secured creditor may in the future see the amount of its deficiency reduced if the secured party or someone related to the secured party purchased the collateral and the proceeds realized from the sale were unreasonably low. N.D.C.C. § 41-09-111.
*A junior secured creditor who repossesses and sells collateral may keep the cash proceeds without having to account to the holders of more senior security interests as long as the junior secured creditor acted "in good faith and without knowledge" that receipt of the cash violated the rights of senior secured creditors. The senior secured creditors may continue to look to the collateral for satisfaction of their liens, but they will not be entitled to any cash realized by a foreclosing junior creditor. N.D.C.C. § 41-09-111.