Lender Sold Your Equipment and Wants the Difference: Deficiency Defenses in California

Last updated: November 2026. Reviewed by Pavel Kolmogorov, California business litigation attorney (State Bar No. 321018).

You may. Under Division 9 of the California Commercial Code, a lender that repossesses business equipment or inventory must send notice before it sells and must make every aspect of the sale commercially reasonable. If you challenge the sale and the lender cannot prove it complied, the law presumes a proper sale would have paid the whole debt, which leaves no deficiency unless the lender proves otherwise. Kolmogorov Law, P.C. is a business litigation firm in Irvine that defends business borrowers and owner-guarantors against these claims.

Call (909) 235-6116 or contact us online to discuss a deficiency demand or lawsuit.

What a deficiency is

After a default, a secured lender may take possession of the collateral and sell, lease, or otherwise dispose of it. (Com. Code, §§ 9609, subd. (a), 9610, subd. (a).) The proceeds are applied to the debt. If they exceed it, the lender must account to the debtor for the surplus. If they fall short, the obligor is liable for the deficiency. (Com. Code, § 9615, subd. (d).)

Where the underlying deal was a sale of accounts, chattel paper, payment intangibles, or promissory notes, the obligor is not liable for any deficiency. (Com. Code, § 9615, subd. (e).) That rule can matter for agreements written as purchases of receivables, a subject our page on merchant cash advance lawsuits takes up.

The two duties the lender must meet

The first is notice. Before disposing of collateral, the secured party must send a reasonable signed notification to the debtor and to any secondary obligor. (Com. Code, § 9611, subds. (b), (c).) Collateral that is perishable, threatens to decline speedily in value, or is customarily sold on a recognized market is exempt. (Com. Code, § 9611, subd. (d).) In a business transaction, a notice sent after default and at least 10 days before the earliest sale date it states is timely. (Com. Code, § 9612, subd. (b).) A sufficient notice describes the debtor, the secured party, and the collateral, and states the method of sale. It also states the debtor's right to an accounting, any charge for one, and the time and place of a public sale or the time after which another sale may occur. Whether a notice missing an item is still sufficient is a question of fact. (Com. Code, § 9613, subd. (a)(1), (2).)

The second is commercial reasonableness. Every aspect of the disposition must be commercially reasonable: the method, manner, time, place, and other terms. (Com. Code, § 9610, subd. (b).) A low price alone does not prove a violation. The fact that more could have been obtained at a different time or by a different method is not, of itself, enough. (Com. Code, § 9627, subd. (a).) A sale is commercially reasonable if it conforms to reasonable commercial practices among dealers in that type of property. (Com. Code, § 9627, subd. (b)(3).) Was the equipment advertised to the people who buy such equipment? How many bids came in?

What happens when the lender falls short

Outside consumer transactions, the lender need not prove compliance until the debtor or a secondary obligor puts it in issue. Once that happens, the burden is on the lender. If the lender fails to carry it, the deficiency is limited to the amount by which the debt, expenses, and attorney's fees exceed the greater of two figures. One is the actual proceeds. The other is what a complying sale would have produced, and that figure is presumed to equal the full debt, expenses, and fees unless the lender proves it is lower. (Com. Code, § 9626, subd. (a).) Put simply, the deficiency starts at zero and the lender must prove its way back up.

A sale to the lender itself, to a related party, or to a guarantor gets a second look. If the price is significantly below what a complying sale to an unrelated buyer would have brought, the deficiency is calculated on the higher figure. (Com. Code, § 9615, subd. (f).) A lender may buy at its own private sale only if the collateral is customarily sold on a recognized market or has widely distributed standard price quotations. (Com. Code, § 9610, subd. (c).)

If you signed a personal guaranty

A guarantor is usually a secondary obligor, meaning an obligor whose obligation is secondary. (Com. Code, § 9102, subd. (a)(72).) The guarantor is entitled to the notice of sale and may put the lender's compliance in issue just as the borrower may.

A guaranty may contain a broad waiver of defenses, and Division 9 limits it. A debtor or obligor may not waive the rules on notice, commercially reasonable disposition, redemption, and the deficiency consequences, to the extent those rules give it rights. (Com. Code, § 9602.) In a business transaction, the rights to notice of sale and to redeem may be waived only by an agreement entered into and signed after default. (Com. Code, § 9624, subds. (a), (c).) Other waivers in the guaranty may still be enforceable, as our page on personal guaranties explains.

What to do when the demand arrives

A debtor may send a signed request for an accounting that identifies the transaction. A secured party, other than a buyer of accounts or similar payment rights or a consignor, must respond within 14 days after receipt. (Com. Code, § 9210, subds. (a), (b).)
Collect the notice of sale and anything showing how the collateral was marketed and who bought it.
If the lender has not yet sold the collateral, contracted to sell it, or accepted it in satisfaction, consider redemption. A debtor or secondary obligor may redeem by tendering full performance of the secured obligations plus the lender's reasonable expenses and any attorney's fees the agreement provides for. (Com. Code, §§ 9615, subd. (a)(1), 9623.)
Check whether the document is a true lease. Our page on equipment lease disputes explains why that changes the rules.
Do not ignore a summons. The defense must be raised in the lawsuit, and our first 30 days guide covers the response deadline.

If you are the secured party

The same statutes are a checklist for a lender or for a seller that financed its own sale. Send the notice to every debtor and guarantor and keep proof of sending. Market the collateral the way dealers in that property do, and keep the bids. A court may restrain a disposition that is not proceeding in accordance with Division 9. (Com. Code, § 9625, subd. (a).) The note and guaranty claims themselves are covered on our page about promissory note defaults.

What to bring to the first meeting

Bring the loan or security agreement, any guaranty, the default and acceleration letters, the notice of sale, and the lender's deficiency calculation. Add what you know about the collateral's value: appraisals, purchase invoices, insurance schedules, or offers you received. If you have been served, bring the summons and complaint and the date of service.

Frequently asked questions

The lender repossessed our equipment, sold it cheap, and now demands the difference. Do we have a defense?

Possibly. In California a secured lender must send a reasonable notice before selling business collateral and must conduct a commercially reasonable sale. If the borrower or guarantor raises the issue and the lender cannot prove both, Commercial Code section 9626 presumes that a proper sale would have covered the debt. The price by itself does not decide the question; the lender's process does.

What is a commercially reasonable sale under the UCC?

California Commercial Code section 9610 requires every aspect of a collateral sale to be commercially reasonable, including method, manner, time, place, and terms. Section 9627 treats a sale as reasonable when it follows reasonable commercial practices among dealers in that kind of property or is made in the usual manner on a recognized market.

How much notice must a lender give before selling repossessed business collateral?

California sets no single period. Commercial Code section 9611 requires a reasonable signed notification to the debtor and any guarantor. For business transactions, section 9612 treats a notice sent after default and 10 days or more before the earliest stated sale date as timely. Whether a shorter notice was reasonable is a question of fact.

I personally guaranteed my company's equipment loan and the guaranty says I waive all defenses. Can I still challenge the sale?

Generally, yes. A guarantor is usually a secondary obligor under the California Commercial Code and must be sent notice of the sale. Section 9602 bars a waiver of the notice, commercial reasonableness, and deficiency rules, and section 9624 permits a waiver of notice only in an agreement signed after default.

Can a lender buy the repossessed collateral itself?

Yes, within limits. Under California Commercial Code section 9610, a secured party may buy at a public sale. It may buy at a private sale only if the collateral is customarily sold on a recognized market or is the subject of widely distributed standard price quotations. Where the lender or a related party buys far below what an unrelated buyer would pay, section 9615 measures the deficiency by the higher figure.

Talk to a California business litigation attorney about a deficiency claim

If a lender has sold your collateral and is demanding the balance, call (909) 235-6116 or contact us online. Kolmogorov Law, P.C. is located in Irvine, California. Related reading: our breach of contract practice and our page on removing a UCC lien once the debt is resolved.

This page provides general information about California law and is not legal advice. Outcomes depend on the loan documents, the facts, and the court.