Q. How Does Vehicle Repossession Work?
A. When you finance or lease a vehicle, your creditor has important legal rights they can assert once you’ve paid off your loan or lease obligation. Your creditor may have the right to repossess and take back your car without going to court or warning you in advance for nonpayment. The creditor also may be able to sell your contract to a third party, called an assignee, usually a collection agency, who may have the same right to seize the car as the original creditor.
With the nations economy in turmoil, the largest consumer protection agency, Federal Trade Commission, reminded collection agencies and all creditors alike that the rights of debtors will not go ignored during these troubled times. While creditors do have the right to repossess the vehicle and resell it to reduce or eliminate the delinquent debt, creditors that violate federal and state consumer protection laws in doing so might be found liable for abuse of process, breach of the peace, conversion, and exposed to possible punitive damages.
In many states, your creditor can seize your vehicle as soon as you default on your vehicle payments. Your contract will state specifically what constitutes a default of the lease or purchase contract. However, if your creditor agrees to change your payment date, or other essential terms, the original contract may no longer apply. If your creditor agrees to such a change, make sure you have it in writing. Oral agreements while valid and binding are difficult to prove in a court of law.
Once you are in default, the laws of most states permit the creditor to repossess your car at any time, without notice, and to come onto your property to do so. However, the creditor may not commit a breach of the peace while repossessing the vehicle. This usually means physical force, threats of force, or taking your car from an enclosed garage.
Should there be a breach of the peace in seizing your car, your creditor may be required to pay a penalty or to compensate you if any harm is done to you or your property. It may also give you the right to sue them for punitive damages. A breach of peace also may give you a legal defense if your creditor later sues you to collect a deficiency judgment against the debtor.
Reselling Your Vehicle
Once your vehicle has been repossessed, your creditor may elect to either keep it as compensation for your debt or resell it in a public or private auction. If the vehicle will be sold privately, you may have a right to know the date of the sale. In this regard, you may also be entitled to buy back the vehicle by paying the full amount you owe (usually, that includes your past due payments and the entire remaining debt), in addition to the expenses connected with the repossession, like storage, preparation for sale, and attorney fees. Or you could try to buy back the vehicle by bidding on it at the repossession sale.
Many states have consumer protection laws that allow you to “reinstate” your loan. This means you can reclaim your car by paying the amount you are behind on your loan, together with your creditor’s repossession expenses. Of course, if you reclaim your car, your future payments must be made on time, and you must meet the terms of your reinstated contract to avoid another repossession.
When your car is repossessed and sold, a creditor will often obtain a sale price well below market value, assess bogus fees and charges and then seek the difference between the amount originally owed, less the auction sale price plus charges and fees. Under law, you can challenge that the sale of your repossessed vehicle was not “commercially reasonable” and the creditor will then have to prove that every aspect of its notice to you and the sale was commercially reasonable.
A creditor’s failure to resell your car in a commercially reasonable manner may give you a claim against that creditor for damages or a defense against the creditors deficiency judgment.
Content Within The Vehicle
The general rule is that the creditor may not keep or sell any personal property found inside the vehicle. In some states, your creditor must tell you what personal items were found in your car and how you can retrieve them. Your creditor also may be required to use reasonable care to prevent anyone else from removing your property from the car. If your creditor can’t account for property left in your vehicle, you may want to speak to an attorney about your right to compensation.
Any difference between what you owe on the vehicle and what your creditor obtains for reselling it is called a deficiency. It also usually includes fees related to the repossession and early termination of your lease or early payoff of your financing. In most states, your creditor is allowed to sue you for a deficiency judgment to collect the remaining amount owed. However, in most states, your creditor must pay you if there is an overage after the sale proceeds are applied to the outstanding balance.
You may have a legal defense against a deficiency judgment if, for example, your creditor breached the peace when seizing the vehicle, failed to sell the car in a commercially reasonable manner, or waited too long before suing you. An attorney will be able to tell you whether you have grounds to contest a deficiency judgment.
Talking with Your Creditor
Contact your creditor as soon as you think you will be late with a payment. Many creditors work with consumers they believe will be able to pay soon, even if slightly late. You may be able to negotiate a delay in your payment or a revised schedule of payments. If you can reach an agreement to change your original contract remember to get it in writing.
Alternatively, your creditor may refuse to accept your late payment and may demand instead that you return the car. If you agree to voluntarily give up your car, you still however are responsible for paying any deficiency on your contract, and your creditor still may report the late payments or repossession on your credit report. It might be best to continue being a debtor in possession until you can negotiate a settlement with your creditor such as the creditor agreeing to forfeit pursuing a deficiency judgment.