Author: Alan Alop, LAF
Last updated: April 2007
Applicability of Article Nine
Chronology of Typical Repossession and Aftermath: Seven Steps On the Way to “Repo” and Deficiency Lawsuit
Notice of Intended Disposition of Secured Property
Commercially Reasonable Disposition of Property
Secured Party Must Provide Written “Explanation” of the Deficiency Amount After the Repossession Sale
Request For Accounting
Burden of Proof
Article Nine of the Illinois Commercial Code was re-written and the amended provisions went into effect July 1, 2001. The law applies to all liens within its scope, even if the lien was created before July 1, 2001. 810 ILCS 5/9-702(a). But if a lien was created before the effective date and repossession also occurred before that date, then the old law will govern the repossession and re-sale of the secured property.
1. Vehicle purchased.
2. Consumer defaults on payments.
3. Creditor repossesses without notice.
4. Creditor sends consumer (and other obligors):
(a) notice of proposed resale of the vehicle pursuant to 810 ILCS 5/9-614; and
(b) notice of application to the Illinois Secretary of State for repossession title; and
(c) notice of 21 day redemption period pursuant to 625 ILCS 5/3-114 (f-5)(1);and
(d) affidavit of defense pursuant to 625 ILCS 5/3-114 (f-5)(2).
5. Resale of vehicle by creditor at public or private sale.
6. Secured creditor must send “Explanation” of debt pursuant to 810 ILCS 5/9-616(b).
7. Lawsuit by creditor against consumer to recover the alleged deficiency between the outstanding balance on the contract or note and the amounts realized at the resale of the secured property ("deficiency suit").
After repossession the secured party will generally elect to dispose of the repossessed vehicle under the requirements of 810 ILCS 5/9-610. In almost all repossessions the creditor will sell the repossessed property and then sue for the deficiency balance. What follows is a discussion of the defenses and counterclaims available to the consumer under these circumstances.
In most cases,  810 ILCS 5/9-620 permits the secured creditor to retain repossessed property in full satisfaction of the outstanding debt if the creditor notifies the consumer of this in writing and the consumer does not object in writing within 20 days. The creditor must give clear written notice to the consumer that the creditor is “retaining the automobile in full satisfaction of the debt." Patrick v. Wix Auto Company, 288 Ill.App.3d 846, 681 N.E.2d 98 (1st Dist. 1997). See also Munao v. Lagattuta, 294 Ill.App.3d 976, 691 N.E.2d 818, 821-822 (1st Dist. 1998). In Schmode's Inc. v. Wilkinson, 361 N.W.2d 557 (Neb. 1985), the court held that a creditor's use of the repossessed auto, even in the absence of a written 810 ILCS 5/9-620 notice, constituted an election to retain the vehicle. If the secured party proceeds under 810 ILCS 5/9-620 (or otherwise fails to dispose of the property) no deficiency amount may be sought from the debtor. Appeal of Copeland, 531 F.2d 1195, 1207 (3rd Cir. 1976). See also Ayares-Eisenberg Perrine Datsun Inc. v. Sun Bank of Miami, 455 So.2d 525 (Fla. App. 1984) (once the creditor repossesses the collateral, it must dispose of it before initiating a deficiency suit); and Cox Motor Car Co. v. Castle, 402 S.W.2d 429 (Ky. App. 1966).
If, as is almost always the case, the secured creditor elects to dispose of the property under 810 ILCS 5/9-610, it is required to send notice to the debtor of the intended sale of the secured property ("resale") pursuant to 810 ILCS 5/9-614 and is further mandated, by 810 ILCS 5/9-610, to conduct the resale in a commercially reasonable manner. If the proceeds of the sale do not satisfy the debtor's outstanding contractual obligation, the secured party is permitted to sue the debtor[s] for the deficiency balance. 810 ILCS 5/9-615. Disposing of repossessed property in compliance with the requirements of 810 ILCS 5/9-610(b) may prove difficult.  Many pitfalls await even the most scrupulous creditor. Similarly, secured creditors frequently send defective notices of resale. Thus, in almost every deficiency case the defendant may be able to allege, as affirmative defenses and counterclaims, that the creditor failed to give proper notice of the resale after repossession and/or failed to sell the repossessed vehicle in a commercially reasonable manner. These two avenues of defense are discussed below in some detail.
The specific requirement to give notice of any dispositional sale after repossession is found in 810 ILCS 5/9-611-614. The key provision in the statute is 810 ILCS 5/9-614, which provides a model notice, colloquially referred to as the “safe harbor” notice. See Appendix G for a copy of the model notice of sale. If the secured creditor avails itself of this “safe harbor," the notice will be deemed sufficient to withstand any debtor’s challenge, even if:
The notice to the debtor must include:
No particular phrasing of this information is required. 810 ILCS 5/9-614(2). A notification in the form of the model notice is sufficient, even if it includes errors in the information specified in paragraphs 6 and 7 above. 810 ILCS 5/9-614(6). But "a notification that lacks any of the information set forth in paragraph (1) [of Section 614] is insufficient as a matter of law." Uniform Commercial Code Official Comment to Section 614, par. 2. “[S]tatutory requirements of notice to the debtor are to be strictly complied with by the creditor in carrying out the actual sale.” First Nat’l Bank of Decatur v. Wolfe, 485 N.E.2d 46, 50 (4th Dist. 1985). Appendix I is a motion for summary judgment and memorandum in a case involving notice.
There are three purposes of the notice: (a) to give the debtor an opportunity to exercise redemption rights (see Illinois 21-Day Right of Redemeption and UCC Redemption Rights above); (b) to afford the debtor an opportunity to seek out buyers for the secured property; and (c) to permit the debtor to scrutinize every aspect of the disposition in order to ensure a fair sale price is realized. Willard v. Northwest National Bank of Chicago, 484 N.E.2d 823, 828 (1st Dist. 1985).
Notice of resale is mandatory. State National Bank v. Northwest Dodge Inc., 108 Ill. App. 3d 376, 438 N.E. 2d 1345 (1st Dist. 1982). 810 ILCS 5/9-611 provides exceptions: (1) where collateral is perishable or threatens to decline speedily in value; and (2) where the collateral is of a type customarily sold on a recognized market. The two exceptions do not apply to motor vehicles. See Carter v. Ryburn Ford Sales, Inc., 451 SW2d 199 (Ark. 1970); Anderson v. People's Security Bank, 503 A.2d 670 (D.C. App. 1986); contra: Ford Motor Credit Co. v. Devalk Lincoln-Mercury Inc., 600 F. Supp. 1547 (N.D. Ill. 1985).
Notice of resale must be given to the debtor and any secondary obligor. 810 ILCS 5/9-611(b). When a husband and wife are joint debtors, the creditor may have to send notice to each, in separate envelopes, to satisfy notice requirements. See Cent. Bank & Trust Co. v. Metcalfe, 663 S.W.2d 957 (Ky. App. 1984) and LaGrange Bank & Trust Co. v. Rodriguez, 137 Ill. App. 3d 1009 (1st Dist. 1985).
If the notice of sale is sent to the wrong address, it is insufficient. Chrysler Capital Corp. v. Cotlar, 762 S.W.2d 859 (Mo. App. 1989).
A notice that misstates the date of a private sale may be invalid. See Lankheit v. Estate of Scherer, 811 S.W.2d 853 (Mo. App.1991); Mason State Bank v. Sekutera, 461 N.W.2d 517 (Neb. 1990) (notice stated sale date as July 27; actual sale date June 27). But see 810 ILCS 5/9-614(5).
While the new statute, 810 ILCS 5/9-612(b) requires 10 days notice in non-consumer goods cases, it sets no time requirements in consumer goods transactions. Instead, 810 ILCS 5/9-612(a) states that the issue as to whether a notice was timely in a consumer goods case will be a question of fact.
The notice of resale must allow consumers reasonable time to take steps to protect their interests. Prairie Vista Inc. v. Casella, 12 Ill. 3d 34, 297 N.E.2d 385 (4th Dist. 1973) (three days notice insufficient). The question of what is a reasonable amount of time may vary depending on the circumstances of the case. Chemlease Worldwide Inc. v. Brace Inc., 338 N.W.2d 428 (Minn. 1983); Baber v. Williams Ford Co., 396 S.w.2d 302 (Ark. 1965) (reasonableness of seven days notice is a question for jury).
Notice may be insufficient where the creditor learns (before resale of the repossessed property) that the debtor did not receive the notice and takes no further steps to notify debtor. In re Carter, 511 F.2d 1203 (9th Cir. 1975); Commerce Bank v. Dooling, 875 S.W2d 943 (Mo. App. 1994); Geohagan v. Commercial Credit Corp., 204 S.E.2d 784 (Ga. App. 1974); In re Bishop, 482 F.2d 381 (4th Cir. 1973). See Northern Trust Company v. Kuykendall, 133 Ill. App. 2d 458, 273 N.E. 2d 526 (1st Dist. 1971). Contra: Ford Motor Credit Co. v. Solway, 825 F.2d 1213, 1219 (7th Circ. 1987); Ryder v. Bank of Hickory Hills, 242 Ill.App.3d 1042, 612 N.E.2d 19, 23-24 (1st Dist. 1993). See also, Official Comment No. 6 to Section 9-611 (whether a creditor who learns that a consumer did not receive the notice of disposition should have made a “second try” is left to judicial resolution).
Notice of the dispositional sale must be in writing, because 801 ILCS 5/9-611(b) requires “authenticated notification of disposition” to be sent to the debtor, and “authentication” requires a signature or other identifying symbol of the sender. 810 ILCS 5/9-102(a)(7). See also, Official Comment 5 to Section 9-611.
Revised Article 9 (unlike the old version) requires the notice to specify the “method of intended disposition,” that is, public or private sale. 810 ILCS 5/9-613(1)(C) [read with 810 ILCS 5/9-614(1)(A)].
Notice of "any" sale means notice of all sales. If the scheduled sale is canceled or postponed, the debtor must be sent notice of the second effort. Willard v. Northwest National Bank of Chicago, 484 N.E.2d 823 (1st Dist. 1985); Staley Employee Credit Union v. Christie, 111 Ill. App.3d 165, 443 N.E. 2d 731 (4th Dist. 1982); Spiller v. First National Bank of Arenzville, 81 Ill. App. 3d 199, 400 N.E. 2d 1057 (4th Dist. 1980); National Boulevard Bank v. Jackson, 416 N.E. 2d 358 (1st Dist. 1981). But see Ford Motor Credit Co. v. Jackson, 126 Ill. App. 3d 1124, 466 N.E. 2d 1330 (3rd Dist. 1984); and Robinson v. Ford Motor Credit Company, 706 F.Supp. 606 (N.D. Ill. 1989).
If the location specified for the dispositional sale of the secured property in the notice of resale is not correct, the notice is insufficient. First National Band of Decatur v. Wolfe, 485 N.E. 2d 46 (4th Dist. 1985).
810 ILCS 5/9-614(1)(C) requires the dispositional notice to list a phone number from which the consumer can obtain the redemption amount. If this telephone number is missing or erroneous, the statute has been violated. The listed phone number should be investigated to see if it connects to an individual that can supply redemption amount figures.
Prior to the enactment of Revised Article 9, cases held that notices which misstated the amount of the redemption figure were invalid. See Wilmington Trust Co. v. Conner, 415 A.2d 773 (Del. 1979); Travis v. Boulevard Bank, 880 F. Supp. 1226, 1231-1234 (N.D. Ill. 1995) (notice which wrongly inflated redemption amount). But Revised Article 9, at 810 ILCS 5/9-614(5), allows creditors to escape punishment for errors in information not required by Section 614(1). So if the creditor provides an erroneous redemption figure, the creditor’s liability for this error will depend on the answer to this question: Does Section 614(1)(C) require the redemption amount to be disclosed to the debtor? Similarly, what if the creditor misstates redemption rights of the consumer, such as informing the consumer of a 10 day right of redemption when, by law, the consumer may redeem at any time before the secured property is sold? Cases under the old Article 9 held such misstatements to violate the UCC. See Topeka Datsun Motor Co. v. Stratton, 736 P.2d. 82, 88 (Kans. App. 1982); and CreditThrift of America v. Smith, 308 S.E.2d. 53 (Ga. App. 1983). Given Section 614(5) of the current Article 9, the continued validity of these cases is in question. Appendix I is a motion for summary judgment and memorandum in a case involving defective notice regarding redemption rights.
Under the old Article 9 provisions, notice that a vehicle "may be sold" after a certain time is insufficient. GMAC v. Carter, 349 S.E.2d 342 (S.C. 1986). In Massey-Ferguson Finance Corp v. Hamlin, 9 UCC Rep. Serv. 142, 145 (Tenn. App. 1971), a notice that used the language "will offer for sale" was held to be inadequate. But see In Re: Globe Motor Homes Inc., 51 B.R. 691 (Bk. M.D. Fla 1985) (notice of sale lacking statement that there will be a sale is sufficient). Compare to language in the new Article 9 at 810 ILCS 5/9-614(2): “A particular phrasing of the notification is not required.”
If the dispositional notice provides an incorrect description of the collateral, it may trigger remedies for the debtor. See, Dennison v. Allen Group Leasing Corp., 871 P.2d 288 (Nev. 1994), where the wrong vehicle was identified in the notice of sale.
Resale notice can only be waived by the debtor in a writing which is executed after default. 810 ILCS 5/9-624(a).
The burden of proving compliance with the resale notice provisions of Section 9-611 through 614 is on the creditor where the debtor raises the issue. 810 ILCS 5/9-626(1) and (2).
The term "commercially reasonable" is not defined in Article 9, although 810 ILCS 5/9-627 gives some guidance in this area. Judicial decisions have delineated the parameters of the “commercially reasonable” sale. The secured party must use "every reasonable means" to obtain the full value of the property and protect the debtor's interest. Boender v. Chicago North Clubhouse Association, 608 N.E.2d 207, 212 (1st Dist, 1992); Morris Plan Co. of Bettendorf v. Johnson, 133 Ill. App.2d 717, 271 N.E.2d 404, 407 (3d Dist. 1971). Creditors must use their "best efforts" to dispose of secured property. Credit Bureau Metro, Inc. v. Mims, 119 Cal. Rptr. 622 (Cal. 1975); Cities Service Oil Co. v. Ferris, 9 UCC Rep. Serv. 899 (Mich. 1971). The creditor should act "in accordance with commonly accepted commercial practices which afford all parties fair treatment." Wilkerson Motor Co. v. Johnson, 580 P.2d 505 (Okla. Sup. Ct. 1978). See Voutiritsas v. Intercounty Title Co. of Illinois, 279 Ill.App.3d 170, 664 N.E.2d 170, 179 (1st Dist. 1996).
A standard of good faith also applies to creditor's conduct. 810 ILCS 5/1-203. See also Morris Plan Co. v. Johnson, 271 N.E.2d 404 (3d Dist. 1971); Old Colony Trust Co. v. Penrose Ind. Corp., 280 F. Supp. 698 (E.D. Pa. 1968); Franklin State Bank v. Parker, 346 A.2d 632 (N.J. 1975).
The "commercially reasonable" standard applies to all aspects of the resale of secured property, including the manner, method, time, place and terms of resale.
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