Strict foreclosure under UCC 9-620 for software and IP collateral

What is strict foreclosure under UCC 9-620?

Strict foreclosure lets a secured party keep the collateral instead of selling it. Under UCC 9-620, as enacted in each state, the secured party may accept collateral in full or partial satisfaction of the debt after default, but only if the debtor consents (for full satisfaction, consent can be deemed when no objection arrives in time) and the notice and objection steps in the UCC text are followed. It depends on your state's enacted version, so check its text.

The short answer for a lender holding software, IP or general intangibles: strict foreclosure can transfer title without an auction, but it requires agreement, and it can leave the lender owning years of the borrower's operational records. That raises a second question about whether to introduce them to SourceX. This is general information, not legal, tax or financial advice. Confirm with your own counsel before acting.

How strict foreclosure differs from a foreclosure sale

What the process usually involves

The detail varies by state, so treat the steps as a map and not a procedure.

1. Default occurs and the secured party identifies the collateral description in its security agreement and filing.
2. A proposal is made to accept the collateral in full or partial satisfaction.
3. Consent is obtained from the debtor in the way the UCC text requires. For partial satisfaction, the debtor's agreement must be recorded after default.
4. Notice goes to other interested parties, such as subordinate secured parties, and an objection period runs.
5. If no valid objection is made, the secured party takes the collateral in satisfaction, and the debt is reduced or discharged accordingly.

Consumer transactions and other categories have extra limits. Counsel should confirm those before relying on strict foreclosure.

How it applies to software and IP collateral

After strict foreclosure: what is the lender holding?

Title to collateral is not the same as usable records. The lender may hold domain names, code repositories, hosted databases and stored email, but not the people who can run them. Subscriptions may lapse and archives may be purged. If you hold collateral that includes operational records, the practical steps are:

• Confirm which systems the collateral covers and whether credentials were delivered
• Fund or transfer hosting so archives are not deleted
• Confirm who created the records and whether client contracts limit licensing
• Check that no other party holds a lien on the same records
• Decide whether to introduce the company to SourceX before accepting the collateral or afterwards

The private credit guide walks through control issues, and the section 506(c) surcharge guide covers who pays when preservation costs fall on an estate. The auction guide is the alternative route.

Can a lender introduce records to SourceX?

A lender can introduce a company, but the licensor is the owner of the records. SourceX licenses data on behalf of companies that hold rights, with the company keeping ownership. If the borrower still exists as an operating or wound-down business with 50+ full-time employees at peak (contractors excluded), years of documented operations and an authorized sponsor, a license can be explored before collateral changes hands. After strict foreclosure, rights depend on what was actually transferred, so counsel confirm before an application. Timing matters too; see the Rule 6004(h) stay if a court order is involved.

Other out-of-court routes to compare

Strict foreclosure is one of several non-bankruptcy tools. A general commercial law textbook describes assignments for the benefit of creditors, compositions and receiverships as alternatives, with state law controlling the details. A lender weighing strict foreclosure against an assignment or receivership should ask which route leaves the records in the hands of someone with authority and funding to keep them alive.

Questions for your counsel

• Does my state's version of 9-620 require anything beyond the uniform text?
• Is the debtor's consent adequate and properly recorded?
• Which interested parties must receive notice, and have any objected?
• What exactly did I accept: the records, the licenses, only the registered IP?
• Are privacy, confidentiality or third-party restrictions attached to the records?

Next step

Before accepting collateral, run a preliminary screen with the company fit checker and read who qualifies. If the company looks like a fit, register as a partner and make the introduction, or have the company's authorized sponsor apply at sourcex.si/apply.

Partners earn 25% of the eligible platform fees SourceX actually collects, capped at $100,000 per referred company, only after the buyer pays and SourceX receives its fee. No reward is guaranteed, and regulated lenders should check their own rules on referral fees first.