Also known as: acceptance of the collateral · strict foreclosure
Written by attorneys · grounded in primary & secondary sources — see below
A method by which a secured party retains collateral in full or partial satisfaction of the secured obligation after default. The secured party must obtain the debtor's consent in an authenticated record after default or proceed without timely objection from the debtor or other interested parties. Acceptance discharges the obligation to the extent agreed and transfers all of the debtor's rights in the collateral to the secured party.
Metro Manufacturing defaulted on a loan from Pioneer Bank secured by factory machinery. After repossession Pioneer proposed to keep the machinery in full satisfaction of the debt and sent notice to Metro. Metro did not object within the statutory period. Pioneer therefore retained the machinery and the debt was discharged without any sale or deficiency claim.
Bruce proposed to accept a partnership interest in satisfaction of a secured debt owed by Cauthen. Cauthen objected in a timely record. Because the objection prevented effective acceptance under the statute, Bruce could not retain the interest and instead had to dispose of it through a commercially reasonable sale.
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The debtor must consent after default in an authenticated record or fail to object timely to the secured party's proposal. Once effective, acceptance discharges the obligation and vests all of the debtor's rights in the collateral in the secured party.
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No. Revised Article 9 requires the secured party's consent in an authenticated record for any acceptance of collateral. Mere delay after repossession no longer creates an implied acceptance.
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Consent is effective only if the debtor agrees to the terms in a record authenticated after default. The same authenticated-record requirement applies to full satisfaction unless the secured party follows the no-objection procedure.
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The acceptance discharges the obligation to the extent agreed and terminates the debtor's rights in the collateral. Junior secured parties and lienholders receive notice of the proposal and may object to protect their interests.
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