This paper addresses the practical and legal issues surrounding Lease Security Systems (LSS) and the deployment of the patented Blok Box and its operation.
The Blok Box™ is UL approved power interrupter that is easily installed by LSS or its network of installers on any piece of electrically powered or controlled equipment. The Blok Box™ will allow the equipment to work normally until there is a payment or other default by the borrower, at which point the LSS customer (typically a secured lender or lessor) can easily disable the equipment through the secure LSS website. Once the default is cured, the lender can immediately return the equipment to normal operation, again with the simple click of a mouse. Both the disabling and re-enabling of the equipment is performed wirelessly and requires neither physical access nor the authority of the borrower.
The perfection and enforcement of security interests in collateral is controlled by Articles 9 and 2A of the Uniform Commercial Code, respectively concerning financed and leased equipment. Article 2A mirrors Article 9’s provisions with respect to repossession. The UCC specifically authorizes the use of the Blok Box™ or devices like it under sections 9-609 and 2A-525, which provide that after default, a creditor or lessor may “render equipment unusable” on the debtor’s premises without court order, provided that doing so can be done without a breach of the peace, which is generally defined as any entry into a facility without specific authorization from the debtor.
Thus, every creditor with a security interest in personal property could technically enter a debtor’s property and mechanically disable their collateral, provided that the borrower permitted them access to do so – an unlikely scenario. Typically, unless a creditor is able to repossess collateral in a public place – such as when an automobile is repossessed when parked outside – the secured creditor must obtain a court order to allow it to enter the debtor’s premises to enforce its rights under the UCC. Obtaining such relief is time consuming and expensive. In many cases the costs of repossession outweighs the financial benefits of recovering the collateral.
Until now, few creditors have been able to exercise their full range of rights under the UCC due to the technological limitations of doing so. The Blok Box™ is designed to leverage the broad powers of UCC without the need for the creditor to take any additional steps. There is no need for a court order or a legal proceeding of any kind. The Blok Box™ is an entirely novel way to use a law that has been in existence, but largely unused, for decades.
By enabling a lender or lessor to instantaneously shut down one or more pieces of collateral, the Blok Box™ is a powerful tool in compelling payment or recovering equipment after a default. Once the collateral is suddenly inoperative, the debtor immediately understands that this lender must be paid on time, month after month. Also, once equipment is disabled, there is little incentive for the debtor to hold on to it and string the lender along – as is often the case with equipment that is not secured by a Blok Box™. However, the Blok Box™ is not merely a sledgehammer that ensures collateral recovery, but is rather a collection tool of greater finesse. Unlike a conventional repossession, there is virtually no barrier to the exercise of this remedy – there are no court proceedings, no lawyers, expenses or delays associated with the Blok Box™. At default, the debtor is immediately educated as to what will happen when they fail to pay on time – their equipment will no longer function. Most debtors will not even know they have Blok Box™ secured equipment until there is an enforcement.
A Blok Box™ enforcement is also unlike any other repossession type action because it can be easily undone with virtually no cost. The equipment can simply be turned back on and business continues as usual. Where a repossession action can take months and tens of thousands of dollars, a Blok Box™ enforcement can begin and end in a matter of hours.
Blok Box™ provides a powerful reminder to a debtor of its obligations. This makes them far less likely to go repeatedly into default. The debts secured by the Blok Box™ therefore tend to be the debts that are paid without delay on the day they are due. The monthly invoice for the loan protected by Blok Box™ moves to the top of the pile every month.
In addition, LSS can use the Blok Box™ to locate collateral protected by the device. So in the rare instance where the borrower ceases all communication, even after a shut down, the lender can more easily recover the collateral, even if it has been moved or relocated from the place of its initial installation. If you have to repossess, we can tell you exactly where your collateral is. No other product can perform this function.
