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Understanding Repossession Law

Informational summaries of Repossession Laws across the nation, provided for general information purposes only.

Vehicle Repossession and the Laws Concerning It

Vehicles can be some of the most important material possessions for human beings. They get consumers and their families where they need to go. However, when late in making the payments for a vehicle, if a consumer does not have sufficient auto insurance, their vehicle can be taken away from them by their lender. This is called a repossession.

For financed and leased vehicles, a creditor or lessor’s rights end once a consumer has paid off their loan or lease obligation. The rights are established in the contract the consumer signed when they bought or leased their vehicle, and in the laws of their respective state. Sometimes, as long as they do so within the confines of the law, a creditor can take back a consumer’s vehicle without having to go to court to sue the consumer or warn them in advance.

Their contract can also be sold to a third party, who may have the right to take the vehicle just like the original creditor who sold them the contract would have had. That third party is often referred to as an assignee.

Some states have rules about whether or not a creditor can repossess a vehicle without providing a consumer notice; the manner in which they are able to repossess the vehicle, and how they can resell it to reduce or eliminate the consumer’s debt. If the creditor violates any of these rules, they can lose some of the rights they would have against the consumer, including but not limited to the right to collect on any deficiency on the loan. They can also have to pay for any monetary damages.

Failing to make a timely payment on a vehicle is what many call a default, and it can allow a creditor to seize a consumer’s vehicle in many states. However, what is in a consumer’s contract can also spell out what would constitute a default that would allow a creditor to take their vehicle.

Many states have laws that allow a creditor to come onto a consumer’s property at any time, and repossess their vehicle, without notice, as long as they are in default. However, not all states do, and in some states, if a creditor were to come onto a consumer’s property without notice, or to repossess their vehicle from their driveway, it would constitute an illegal trespass. A third-party repossession company hired by the original or current creditor to repossess a consumer’s vehicle could also be liable for illegally trespassing on the consumer’s property.

Third party repossession companies, hired by creditors to do the actual seizing of property, can be deemed debt collectors. Debt collectors are governed federally by a federal statute entitled the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (“FDCPA”). The FDCPA states what debt collectors can and cannot do. That statute states that repossession companies are considered debt collectors pursuant to 15 U.S.C. § 1692a(6). Repossession companies become subject to liability under the FDCPA if they attempt to repossess collateral without a present right to repossess the collateral.

A violation of the FDCPA by a repossession company could entitle the consumer to be owed up to $1,000.00 in damages to be paid by the repossession company. Consumers could be entitled as well to compensation for actual damages that they have incurred such as fees related to the repossession, towing costs, costs for storage of the vehicle, compensation for damage to their property or the vehicle, and in some instances compensation for damages due to emotional distress. The repossession company could have to pay the consumer’s legal fees and costs as well, pursuant to the FDCPA.

Section 1692f(6) does not permit debt collectors to be, “[T]aking or threatening to take any nonjudicial action to effect dispossession or disablement of property if … there is no present right to possession of the property claimed as collateral through an enforceable security interest.” 15 U.S.C. § 1692f(6)(A). In some states, a repossession company does not have the right to present possession of collateral without sending a pre-repossession notice. In some states, a repossession company does not have the right to present possession of collateral if the repossession resulted from an illegal trespass, or a breach of the peace, and so on.

When taking a consumer’s vehicle, a creditor cannot commit what is called a “breach of the peace,” which in many states means the use of physical force, threats of force, and lies to get the vehicle or keys to the vehicle, or taking the vehicle from a closed garage without the consumer’s permission, amongst other things. It could also constitute a breach of the peace if the creditor damages the consumer’s property when they seize their car. A repossession agent pressing on with a repossession after the consumer objects, in the absence of having a court order allowing the repossession, can also constitute a breach of the peace. The public policy reason behind that is that such a situation if left unchecked could cause violence to occur. A creditor could have to pay the consumer a penalty or compensate them if any harm is done to them or if any damage is done to their property. Breaches of the peace, and also the lack of the creditor sending the consumer a pre-repossession notice, can in some states allow the consumer to have a legal defense if there is a deficiency still owed on the loan or “deficiency judgment”. A deficiency judgment is considered to be the difference between what it is claimed that the consumer still owed on the contract in addition to repossession expenses and expenses from the sale, and what the creditor attained in monetary funds from selling the vehicle.

After it has been repossessed, a creditor can keep a consumer’s vehicle as compensation for their debt. They can also resell it in a private sale or a public sale. In some states, creditors have to let the consumer know what will happen to the vehicle via sending them a post-repossession notice. A state’s laws may require the creditor to let the consumer know the time and place of the sale.

The public policy reason behind that is to ensure that the individual has the ability to attend and be a part of the bidding process on the vehicle if they wish to try to buy it back. For private sales, a state’s laws might require that the consumer has a right to know the date of the sale. In the above-mentioned circumstances, they could have the opportunity to buy back the vehicle by paying the full amount that they owe, which generally includes not only past due payments, but also the remaining amount of the entire debt. This is often called “redeeming” the vehicle.

A creditor can allow the consumer to redeem the vehicle by paying a lesser amount, such as by only requiring them to have to pay back the past due payment amounts. The consumer could also, however, be required by the creditor to have to pay back expenses connected to the repossession such as storage costs, costs associated with preparing the vehicle for sale, and the attorney’s fees of the creditor; where appropriate. Some states have specific laws in place to protect consumers, that allow them to do something normally referred to as reinstating the loan. It allows the consumer to reclaim the vehicle. They would pay the amount they are behind on the loan, along with the creditor’s repossession expenses. Future payments would need to be made on time and the consumer would need to be in compliance with the other terms of their contract to ensure that they avoid another repossession.

A creditor does not have to get the highest possible price for a vehicle in a resale. The resale of the repossessed vehicle just has to be conducted in a commercially reasonable manner. The price just cannot be below fair market value, or it would be deemed not commercially reasonable. What is or is not commercially reasonable depends on the standard sales practices where the consumer lives. If a creditor does not resell a consumer’s vehicle in a commercially reasonable manner, they could owe the consumer damages, or enable them to have a defense against owing a deficiency judgement. Creditors cannot keep or sell a consumer’s personal property that they find inside the vehicle, and they have to tell the consumer what items they find in the vehicle and how to get them back. They cannot require an individual to sign a release form, releasing them of all liability, prior to being able to get back the vehicle.

The repossession company that they hire cannot do so either. The consumer is not required to sign a release form in order to get back their property or vehicle from a creditor or repossession company. A creditor may be required to use reasonable care to stop anyone else from removing the consumer’s property from their vehicle. If the creditor cannot account for the articles that were left in the vehicle, the consumer should contact a lawyer. The consumer may be entitled to compensation for the lost items.

After a repossession, the amount a consumer owes that is remaining on their contract for the vehicle minus the amount that their creditor gets for selling the vehicle is called a deficiency. There are other fees that a consumer could owe under the contract in addition to a deficiency, such as repossession fees, and fees related to the early termination of their lease for the vehicle or the early payoff of the financing on their vehicle. A creditor can sue a consumer for a deficiency judgment in most states. They would do this to try to collect the remaining amount that is owed but they can only do so provided that they follow the proper procedures for the repossession of the vehicle, and the sale of the vehicle. If there is a surplus of funds after the sale proceeds from the selling of the repossessed vehicle are applied to the outstanding contract obligation and the expenses that are related to it, then the creditor has to give that surplus of funds to the consumer. In some states, if the amount of the deficiency is very small, or if the creditor or its repossession company that it hired either breached the peace, or did not send the consumer a pre-repossession notice, or did not sell the vehicle in a commercially reasonable manner, or waited too long to sue the consumer, then the consumer has grounds to be able to contest owing or having to pay on any deficiency judgment.

Some creditors will not provide a consumer with financing for a vehicle, unless the individual agrees to let them install an electronic monitoring device in their vehicle that will not let them start the vehicle if they are not making their payments under the contract on time. Different states treat the usage of those devices differently, and that can affect a consumer’s rights. Usage of those devices could be considered a breach of the peace or a repossession unto itself, depending on the contract with the lender, and each respective state’s laws. In some states, during a repossession, a repossession company’s employee might try to record the consumer while they are at the consumer’s home. If they do not obtain the consumer’s consent before starting the recording, that might be illegal, as in some states, consent must be obtained from the other party before they can be recorded. If a consumer is in one of those states where the repossession company would have to obtain their permission first, and the company does not obtain it and illegally records the consumer without their consent, the repossession company can owe them monetary damages. In most states, consumers are allowed to monitor their private property, so they might be allowed, depending on which state they live in, to set up a camera on their property that can monitor and capture any illegal trespass or breach of the peace by the repossession company. If consumers have questions about the respective laws of their state, they can contact a state consumer protection agency, the office of their state’s Attorney General, or an attorney who is licensed to practice law in the consumer’s state. An attorney can assist a consumer in determining the legalities in their respective state in regard to the usage of these devices.

Many lenders will work with a consumer if the consumer contacts them as soon as they think they might be late with a payment. The consumer might be able to negotiate the allowance of a delayed payment, or a change in the schedule of when their payments are due. All agreed changes should be obtained in writing, and a copy maintained for personal records. If the creditor or lessor will not accept late payments or changes to a consumer’s contractual agreement with them, the consumer can also agree to what is called a “voluntary repossession”. This would reduce the expenses incurred by the creditor that the consumer might end up being responsible for paying, but they could still be responsible for any deficiency on their contract. The repossession or late payments could also still be entered on their credit report. If the consumer is considering filing for bankruptcy, or has already filed for it, they should be sure to ask a lawyer who is licensed in the state that the consumer resides in about what their rights are to the vehicle during that process. The consumer can also consult with and contract a credit counseling organization for help in dealing with their contract. Some credit counseling organizations are nonprofits, and will work with and for the consumer, but being a nonprofit does not mean that the services are free, affordable, or beyond reproach. The consumer should ensure that the fees of the organization they contact are not exorbitantly high and excessive, and that there are no hidden charges, or charges that are claimed to be voluntary for the consumer to pay but that ultimately would cause them to end up in more debt. Credit counseling organizations can help consumers, but consumers would have to make sure that they are legitimate organizations that are operating in an ethical and legal manner. A state consumer protection agency in the state that a consumer resides in, the office of the Attorney General in a consumer’s respective state, or an attorney who is licensed to practice law in the state that a consumer resides in, as well as the Consumer Financial Protection Bureau and also the Federal Trade Commission, can all help consumers in determining this, and whether a repossession was legal or not, as well.