Credit Union Notice of Sale of Collateral was fatally defective and Court denied recovery of deficiency balance due to defective Notice of Sale.

In this case, the debtor entered into an open-ended credit plan and security agreement secured by the debtor’s Lincoln automobile.

The debtor’s loan went into default and the Credit Union repossessed the vehicle.

Prior to the sale of the collateral, the Credit Union sent a notice to the debtor advising him that the vehicle had been repossessed, that the balance on the loan was $16,483.12 and that the debtor would be personally responsible for any deficiency owing after the sale of collateral.

The Credit Union’s notice of sale did not, however, advise the debtor that the collateral would be sold after any particular date if the debtor did not pay off the loan balance.

Failure to provide adequate notice of the sale of collateral can prevent a creditor from collecting any deficiency amount owing after the net proceeds of the sale have been applied to the loan balance.

As in most states, Texas has adopted the Uniform Commercial Code which prescribes that adequate notice of the sale be timely given to the debtor.

In this case, the notice given to the debtor failed to advise him that sale would occur after a specified time if the loan balance was not paid. Here, the Court held that failure to provide that date in the notice was fatal, and a deficiency could not be recovered. Knights of Columbus Credit Union v. Walter Stock, (Court of Appeals of Texas, 5th Dist., No. 05-90-01069-CV).

Author: Charles R. Harroun, Attorney at Law