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This memorandum highlights the principal changes that have been made in the February 2000 draft.

Former section 102, the "Purposes" section, has been deleted. The Conference no longer uses such sections.

The definitions have been moved forward to become Section 102. They were in Section 109 in the prior draft.

§ 102(1) "Acceleration": This definition is new. It is included as an adjunct to Section 202, which provides for "deacceleration" if cure of the default is made within the time allowed by that section.

§ 102(2), "Aggrieved party": An illustrative list of possible aggrieved parties has been added.

§ 102(3) "Agreement": The prior draft included the words, "Whether an agreement has legal consequences is determined by the provisions of this [Act], if applicable; otherwise by the law of contracts." This sentence has been deleted.

§ 102(8) "Creditor": This definition has been revised to expressly include trustees in bankruptcy.

§ 102(9) "Debtor": This definition has been reworded to make the sentences shorter, but without any substantive change.

§ 102(12) "Expenses of foreclosure": The former version of this definition contained a limitation on the fee of the person conducting a foreclosure by auction. The limitation was not less than $200 nor more than $1,000. That limitation has been deleted in this draft. The phrase "and permitted by law" was added to the reference to attorneys' fees. The suggestion was made that delinquent property taxes be added as an item of expenses of foreclosure. However, very few existing power-of-sale statutes include taxes, and the addition was not made in this draft.

§ 102(13) "Mailing address": This definition was removed from Sec. 203. The references in this definition to the secured creditor's obligation to make a reasonable effort to correct an invalid mailing address have been moved to a new section 109. Specific references to internet searches and the like and been removed from the text and are now found in the comment.

§ 102(17) "Residential debtor": The former draft's term "protected party" has been replaced with the term "residential debtor." In addition, the definition has been clarified by providing that, to be a "residential debtor," the individual must intend to occupy the real property within two years after acquiring it. This is intended to accommodate persons who purchase land with the expectation of constructing a home on it; two years should be sufficient time to allow completion of construction.

§ 102(18) "Real property": The prior draft included rents in the definition of real property. That term has been deleted in this draft.

§ 102(19) "Record," used as a noun: This definition is new. It is derived from the Uniform Electronic Transactions Act, and is a necessary adjunct to the notice concepts covered in § 106.

§ 102(20) "Record," used as a verb: The prior draft contained an elaborate definition of "recording." This draft abandons that definition, and instead adopts the definition of the state's existing recording act.

§ 102(21) "Residential real property": The prior draft provided that residential real property could not contain more than two dwelling units. This draft changes that figure to four units, a number that is more consistent with federal housing law and practice. This draft also inserts a requirement that the property must not be used primarily for agricultural or commercial purposes.

§ 102(23) "Security agreement": This definition has been expanded to list the various types of security agreements, and to expressly include liens given to enforce common interest community obligations and covenants running with land. This listing of the types of writings was found in the "Scope" section of the prior draft.

§ 103, Scope: This section was amended to make nonjudicial foreclosure available only if the debtor has agreed to it in the security agreement or otherwise. It was also changed to clarify that liens in common interest communities and liens to enforce covenants running with land can be foreclosed under the Act, provided that the debtor has so agreed. A reference to the possibility of a state's excluding installment contracts from the Act was added to the Comment.

§ 105, Variation by Agreement: This section has been completely rewritten to reverse the presumption of the prior draft. Generally, modifications of the Act's effect by agreement are not permitted. However, time periods allowed for debtors and others to respond to creditors' notices may be lengthened by agreement. Query: should the time periods allowed to creditors also be expandable by agreement?

§ 106, Supplemental Principles of Law and Equity Applicable. This section has been revised slightly to make specific reference to equitable principles in foreclosure and to mention the possibility of a court's "deaccelerating" a debt.

§ 107, Notice: This section has been completely revised to be consistent with the definitions in the current draft of UCC Article 2, which permits electronic notices. However, in the reporter's discussions with Professor Bill Henning, the Chair of the Article 2 Drafting Committee, the two concluded that the potential harm resulting from an unreceived notice under this Act was so great that electronic transmission of notices of default, right to reinstate, and foreclosure should not be permitted except when the debtor is nonresidential and has expressly consented to a different form of transmission of notice. The language approving notices that contain extra information or minor errors was derived from new UCC §9-613(3).

§ 109, Correction of Mailing Address: The obligation of the secured creditor to make a reasonable effort to correct an invalid mailing address was removed from Sec. 203 and was revised to take out specific references to internet searches and the like. These references are now found in the comment.

§ 201, Rights and Remedies: In the prior draft, subparagraph (a) of this section was the definition of "in default." It has been changed to "right to foreclose" to reflect the fact that in common usage, the term "in default" does not usually suggest that all notices have been given and all grace periods have expired.

§ 202, Notice of Default and Right to Cure Before Foreclosure: The prior draft made the cure period commence on the date of default in the case of monetary defaults. This draft, on the other hand, begins the cure period when the notice of default is sent. This change was made on the ground that in many cases the cure period would already have expired when the debtor received the notice if it commenced when the default occurred.

The discussion of redemption rights appearing in the previous draft has been deleted from this draft, and replaced by a reference to the common law right of equitable redemption.

§ 203, Notice of Foreclosure: Manner and Effect of Giving. Some of the material that appeared in this section in the prior draft has been moved to Section 107 (defining "giving notice") and Section 102(13) (defining "mailing address"). The prior draft permitted the same notice to serve two or more debtors if they shared the same mailing address. This provision has been deleted, and in the present draft a separate notice must be sent to each debtor. This change was made due to concern that if the relationship between co-owners of the property deteriorates, and one of them relocates, those remaining at the original address may not forward the notice.

§ 204, Notice of Foreclosure: Content. Several items that were required in the notice of foreclosure by the prior draft have been deleted. They include the specification of the type size in the notice, the fact that a prior notice of default has been given under Section 202, and the fact that junior interest holders and the debtor have a right to surplus. This draft also adds requirements that the notice include a list of parties intentionally omitted from the foreclosure if any, the lender's determination as to whether or not a deficiency will be sought, and the time and place at which the auction sale will be held.

§ 205, Foreclosure by Auction: This section has been revised to permit a state legislature adopting the Act to incorporate the state's existing procedures with respect to place and time of advertising of judicial foreclosure sales. The secured creditor is also authorized by this draft to make available to bidders any reports or information on the collateral, and is exculpated from liability for errors in such information. The provision in the prior draft giving pre-foreclosure access to the property to bidders has been deleted. In this draft, any deposit forfeited by a bidder who fails to pay the remainder of the price is to be used (after payment of expenses) to reduce the balance on the secured obligation. The presumption of compliance with the notice and sale provision of the act no longer arises from recitals in the foreclosure deed, but arises from the delivery of the deed itself.

§ 208, Meeting on Propriety of Foreclosure. In the prior draft, this section provided for a hearing before an independent officer. The present draft substitutes a meeting with a "responsible representative" of the secured creditor, but is otherwise similar.

§ 209, Judicial Supervision of Foreclosure. The listings of the various actions a court might take - marshaling, determining priorities, etc. - have been moved to the comment. The text now states that the court may take any action that would be within the scope of authority of the court in a foreclosure by judicial action. The prior draft's allowance of a $500 penalty to a protected party debtor for violations by the secured creditor has been deleted.

§ 210, Deficiency. The prior draft required an action for a deficiency to be commenced within 90 days after the time of foreclosure. That requirement has been deleted in this draft, and the only time limitation on the commencement of a deficiency action is the statute of limitations on the debt.

§ 213, Foreclosure of Multiple Parcels. This section is a greatly expanded version of the provisions for multicounty property contained in the previous draft. It deals with both single-county and multicounty situations in which more than one parcel of collateral is covered by the security interest.

§302, Effective Date. Should the Act apply to all foreclosures commenced after its effective date, or should it be limited to security agreements entered into after its effective date? The question seems to have very little practical importance, since this draft of the Act makes it foreclosure procedures available only if the security agreement contains a statement that nonjudicial foreclosure is available. In states that presently have only judicial foreclosure at present, few if any security agreements are likely to have such language. On the other hand, if the Act is adopted in states that presently have some other form of nonjudicial foreclosure, it may well be that the necessary language would exist in most security agreements.