You decide to sell some of your spare equipment. Because the buyer can’t afford to pay the full purchase price in a lump sum, you agree to accept a promissory note calling for monthly payments over a couple of years. You even go so far as to have your construction lawyer record a security interest in the equipment you’re selling. Unfortunately, the buyer defaults after a year and abandons the equipment. You manage to get it back but the equipment is now one year older, not worth what it was when you originally sold it, and still has the bulk of the purchase price unpaid. So you opt to sell it again in hopes of recovering some of what you’re still owed. What do you need to do to sell your repossessed equipment?
The Right Way To Sell
A recent case has made clear that selling repossessed equipment absolutely requires that the sale be conducted consistent with industry standards. That involves making sure the method, time, place and other terms of sale are properly noticed and are commercially reasonable. This is necessary as the law seeks to prevent a creditor from unfairly underestimating the value of its repossessed equipment or from reacquiring its collateral at less than the equipment’s true current worth.
Once someone questions the reasonableness of the sale, the burden will be on you to establish that disposition was fair and according to the law. The court in the case we mentioned went on to state “the importance of correct notice cannot be overstated.” Indeed, the failure to properly notice the defaulting buyer, the very person who caused the sale of the collateral in the first place, will call into question all other aspects of what may have been a perfectly reasonable sale and require you to do it all over again.