6 Questions You Need to Answer About Your Repossession.

A month ago Carl woke up to find his car missing from his driveway.  A note on his door informed him his car had been repossessed due to lack of payment.  Carl was flabbergasted.  Sure, his payments were late on occasion and there were a few months last year when he couldn’t pay because he got laid off.  But he never thought they would take back his car.

To make matters worse, this morning Carl found out his car had been sold at auction for $7000 less than he owed on the loan and he was responsible for the balance.

If this story sounds familiar yours was likely one of the millions of vehicles repossessed every year in this country.  As if living without your car isn’t hard enough, you may still be liable for a deficiency.   While legal, creditor repossessions are highly regulated by state and federal law.   If your vehicle has been repossessed, you are being sued for a deficiency or worried about either, you should ask yourself the following questions.

Is the Creditor Entitled to Repossession?

In order to repossess any property, a creditor must have a valid, enforceable security interest in the collateral.  If you financed the purchase of the vehicle with a loan, you likely granted the financial institution or dealer a security interest in the vehicle through a security agreement (contract).  If you took a title loan out on the vehicle, you probably granted the creditor a security interest in the vehicle as collateral for the loan.  Whether or not the creditor is entitled to repossess the vehicle may depend on the language of the original agreement.  Carefully review all the documents related to the sale for relevant terms and conditions.  If someone besides your original creditor, or their agent, repossessed your car, they may have violated the law.

Are You in Default?

The creditor cannot repossess your vehicle unless you are in default.  Default should be defined by the original contract.  Typical contracts define default as more than just non-payment; including late payment, failure to properly insure or relocation of the collateral without notice.  Usually, when one or more of these conditions are met the contract allows the creditor to accelerate the debt.  This means the full unpaid balance becomes due immediately.  Chances are you would be unable to pay the entire amount, so the creditor will declare default on the balance of the loan.

Even though you may technically be in default, the original creditor may not declare default if they have waived their contractual rights.  A common example is a creditor’s acceptance of late payments.  If your creditor has routinely accepted late payments without comment, they may have waived their right to declare default without reaffirming their right to timely payment in writing.  Your withholding of payments may also be justified based on a breach of the contract by the creditor, such as breach of warranty.

Again, carefully review the terms of the contract.  If the contract states that the creditor can declare default in these or other situations, then there is no default until the creditor actually declares a default.   Without a declaration, the creditor cannot accelerate the loan or repossess the collateral vehicle.

 Was the Repossession Conducted Properly?

Once a default has been declared, Utah law allows for creditors to repossess a vehicle without further notice or court intervention so long as the repossession does not result in a breach of the peace.  While “breach of the peace” is determined on a case by case basis, the general rule is that the creditor cannot use force or threats, cannot enter the debtor’s residence or enclosed property without permission and can not seize property over the debtor’s objections.  While illegal activity, violence or actions likely to result in violence also qualify, trespassing, deception and trickery are more nuanced.   Talk to an attorney about the specifics of your case if you think the actual seizure of your property may have been improper.

Were You Given Notice of the Repossession Sale and/or the Opportunity to Redeem?

After repossessing the vehicle, Utah law allows a creditor to sell it and apply any money received toward the balance of the loan.  However, prior to the sale the creditor must provide you with written notice of the intended disposition, including the date, time and place of a public sale.  This notice should also include a statement of your right to redeem the vehicle by paying the full amount of the loan.  The creditor is required to provide this notice a reasonable amount of time before the disposition of the vehicle.

Was the vehicle disposed of in a “Commercially Reasonable” Manner?

If your creditor has already sold your vehicle, they have the burden of proving that every aspect of the sale was conducted in a commercially reasonable manner.  While the final sales price is important in making this determination, it is only one of many factors a court will consider. Advertising, pre-sale care and cleaning, date, time, location and type of the sale, the number and quality of offers and ultimate purchaser are all examined.  Meeting this burden can be very difficult for creditors, particularly ones that do not have proper procedures in place.

Did the Creditor Provide you with an Accurate Accounting of the Deficiency?

Even if the vehicle was sold in a commercially reasonable manner, the creditor still must provide you with an accurate accounting of how the proceeds were applied and how any surplus or deficiency has been calculated.  Carefully review these records to ensure all your previous payments were properly applied, that insurance premiums have been rebated and that no unjustified fees or charges where included.   This document will also be very useful in determining who purchased the vehicle and whether the sale & sales price were reasonable.  If you never received an accounting the creditor contact an attorney to discuss your remedies.

If you answered no to any of these questions the repossession or sale of your vehicle may have been improper.  If so, you may be able to do more than just bar a deficiency claim.  Actual damages suffered, finance charges and statutory damages as high as 10% of the total price of the vehicle may be available depending on the nature of the violation.  Additional claims might also be available under the Utah Consumer Sales Practices Act or the federal Fair Debt Collection Practices Act.

This article is only intended to highlight some of the major issues related to repossessions.  Challenging a repossession or deficiency is a complicated, highly technical process.   If your property has been, or is in danger of being repossessed, contact a consumer defense attorney in your area.  They can help you determine whether violations have occurred and what remedies are available.