Foreclosure on mixed collateral

     A secured lender often will take more than one parcel of real property as collateral for a single obligation. We refer to this type of transaction as one in which the secured party has "multiple security". We use a different label, "mixed collateral," to refer to a situation in which a secured party takes both real property (one or more parcels) and personal property (one or more types or items) as collateral for a single obligation.

     Transactions involving multiple security and those involving mixed collateral present some special issues. In transactions involving multiple security, a secured party may circumvent the anti-deficiency protection of Cal. Code Civ. Pro. 580b by fractionalizing the debt (Roseleaf v. Chierighino) and may circumvent fair value limitations by sequential non-judicial foreclosure sales (Hatch v. Security First Nat'l Bank). In Problem.Security first.3, we explore the application of the security first (one form of action) rule to the multiple security context and in Problem.Deficiency.3 (real property) we explore the application of Cal. Code Civ. Pro. 580d to the multiple security context.

     Transactions involving mixed collateral pose additional, complex problems. To appreciate the source of these problems, note the differences between the manner in which Article 9 and California real property security law treat issues arising upon default. The following chart summarizes the differences:

     These two worlds collide where a secured party has mixed collateral. Section 9-604 of the uniform version of Article 9 (section 9-501(4) of former Article 9) provides little help in mediating the conflict, although less mediation is required in those states where real property security law does not depart as significantly from Article 9 as it does in California.

     Effective 1986 the California legislature adopted a non-uniform amendment replacing former U.C.C. 9-501(4) with a unique California version.   We reproduce the California version (Cal. 9-604 of revised Article 9) in our materials immediately following the uniform version.  The goal of the amendment was stated in a report of a state bar committee that drafted the amendment:

. . . to minimize the interference with the rights and remedies of the secured party vis-a-vis the personal property collateral arising from the fact that the secured party also holds real property collateral, while at the same time not expanding the rights and remedies of the secured party vis-a-vis the real property collateral simply because he also holds personal property collateral.  Report of the Uniform Commercial Code Committee of the State Bar of California on Proposed Amendment to California Uniform Commercial Code Section 9501(4) (Dec. 7, 1984), reprinted as Appendix I to Hirsch, et. al., The U.C.C. Mixed Collateral Statute--Has Paradise Really Been Lost, 36 U.C.L.A. L.Rev. 1, 69,72 (1988).

     We explore the operation of California's version of 9-604 in Problem.Mixed collateral.