Foreclosing on Collateral? Make Sure Your Sale Is Commercially Reasonable

Foreclosing on collateral when a debtor defaults requires close attention to the rules under Part 6 of Article 9 of the Uniform Commercial Code (UCC). Among them is the requirement in Section 9-610 that a foreclosure be “commercially reasonable.” This requirement is very fact-focused and, accordingly, one of the most litigated standards in Article 9.

UCC Section 9-610(a) gives a secured party the right to “sell, lease, license or otherwise dispose of any or all of the collateral…” However, Section 9-610(b) stipulates that “[e]very aspect of a disposition of collateral, including the method, manner, time, place, and other terms, must be commercially reasonable.” Section 9-627(b) further clarifies that a disposition is commercially reasonable if it is made “(1) in the usual manner on any recognized market; (2) at the price current in nay recognized market at the time of the disposition; or (3) otherwise in conformity with reasonable commercial practices among dealers in the type of property that was the subject of the disposition.”