The National Consumer Law Center just released a report on the dangers of self-help repossessions. In all 50 states, when a lender decides that a borrower has defaulted on the loan, they can unilaterally—and without any court involvement or notice to the borrower—seize the vehicle and sell it. Because self-help repossession doesn’t require the lender to go to court, the borrower—who often can’t afford a lawyer—must then initiate their own court action if they believe the car has been wrongfully taken. Navigating the legal system without a lawyer is a daunting, and often impossible, task for many people. So most wrongful repossessions go unreported and unchallenged.
The report notes that in the last three years there have been 6 deaths reported during self-help repossessions. There have been dozens of injuries and arrests, numerous reports of weapons being used, and two reports of vehicles being seized with young children still in them. The report then details several of the most violent and egregious incidents. And based on my experience handling wrongful repossession cases, many violent incidents go unreported, so these statistics are probably on the low side.
The study points to three main things as the cause of these disturbing statistics: (1) the fact that cars have become an essential part of most people’s lives in the 21st century, which leads many borrowers to resist the repossession; (2) the complete lack of court oversight of the self-help repossession process; and (3) the lack of licensing requirements for repossession companies and agents, often leading to many convicted criminals being employed in the industry.
The report then makes several suggestions to improve the process, and hopefully reduce the number of violent—and even deadly—incidents. I’ve summarized them here, and included my thoughts and comments for each one:
- The consumer should receive notice that a default has occurred and be given a reasonable time period to cure the default. Amazingly, this is not required in most states, including Minnesota.
- A clear rule that if the consumer objects in any way during the repossession, the repo man must stop and the creditor must then seek a court order. This should help defuse most violent situations before they start. While this may occasionally lead to a borrower that is clearly behind on his payments resisting a valid repossession, the lender can still protect its rights by obtaining a court order to repossess the car.
- After repossession, the creditor must give the consumer a reasonable time to redeem the loan before selling the car. Again, this is not required in many states, including Minnesota.
- Strict licensing requirements for repossession companies and agents. To me, this is the biggest no-brainer. And because of the inherent danger in self-help repossession, convicted criminals, particularly those with a history of violence, should not be allowed to work as repossession agents.
- Clear liability by creditors for bad acts by the repo agents they hire. Minnesota case law is pretty clear that a lender is liable for the conduct of the repo agents, but that’s not the case in many states. This requirement would help ensure that lenders only hire reputable repossession companies.
The study also raises the possibility of creating a simplified and streamlined court process that lenders must go through before repossessing a car. The report points to the landlord-tenant eviction process as an example. I think this is a wonderful idea. It would eliminate self-help repossession, give the borrower a chance to dispute the repossession, and add court oversight to ensure that the process is fair to both parties. Lenders will undoubtedly object to this idea. They will probably even resort to their favorite scare tactic, the prospect of increased auto loan costs for all borrowers, to prevent such a process from being implemented. Even if that were true—and that’s certainly debatable—it’s a small price to pay to eliminate the senseless, and largely preventable, violence that can happen during a self-help repossession.
I created a free guide about repossession so that you can learn more about your rights. Feel free to download it and please share it with anyone else that you think could use it. And if you live in Minnesota, and believe that your vehicle has been wrongfully repossessed, consider contacting me for a free case evaluation.
Repo Madness: How Automobile Repossessions Endanger Owners, Agents and the Public (PDF)| National Consumer Law Center | March 2010
(Photo: http://www.flickr.com/photos/davidberkowitz/ / CC BY 2.0)
After your lender repossesses your car, they will sell it and apply the sale price to the amount remaining on your loan. In most cases, there is still a deficiency remaining on your loan after applying the sale proceeds. More often than not, your lender will then sue you for that deficiency. If that happens, here are some possible defenses to the deficiency lawsuit:
- Statute of limitations. In most Minnesota debt collection cases, such as credit cards, the statute of limitations is six years. However, the statute of limitations for a repossession deficiency claim is four years. If the creditor brings the deficiency lawsuit over four years after you made your last payment, the statute of limitations on the claim may have passed.
- Incomplete or ineffective assignment of the loan. Like credit card debts, many repossession deficiency accounts are sold to third-party debt buyers. The debt buyer must be able to provide a complete and detailed chain of title of ownership of your account. Often, the chain of title is either incomplete or does not specifically identify your account, but rather a large batch of accounts.
- The sale of your car after repossession was not commercially reasonable. The general rule is that every aspect of the sale of a car after repossession must be commercially reasonable. This essentially means that the creditor must act in good faith and use its best efforts to get a fair price for your car.
- The creditor accepted your car as a full satisfaction of the loan. Occasionally, creditors tell people that if they turn over their car voluntarily, they will not pursue the person for a deficiency. Creditors may later deny making this promise. Some courts have held that promising not to pursue you for a deficiency if you turn over your car voluntarily bars that creditor from pursuing a deficiency.
It’s also possible that the creditor may not have followed the proper procedures when they repossessed your car. This may allow you to bring a counterclaim against them in the deficiency lawsuit. This post details some of the most common wrongful repossession practices. While a counterclaim is not technically a defense to a deficiency lawsuit, a valid counterclaim can often lead to a reasonable settlement of the deficiency claims.
If you live in Minnesota and have been sued to recover a repossession deficiency balance, feel free to contact me to discuss your case further.
If you’ve missed a few payments on your auto loan and are concerned about the lender repossessing your car, here are some options to consider that may allow you to either keep you car, or lessen the impact on your finances:
- Can you re-finance the loan so that you can better afford the payments? Credit unions usually offer better rates than more conventional auto lenders.
- Can you sell the car to a private party and get enough cash back to repay the loan?
- Will the creditor negotiate waiving any deficiency balance or a less damaging mark on your credit if you voluntarily surrender the vehicle to them? If so, make sure you get that promise in writing. You may want to talk to a lawyer before voluntarily turning over your vehicle to make sure you do not have any defenses to the repossession.
- Is filing bankruptcy an option? If so, consider discussing your situation with a bankruptcy lawyer.
If you’ve explored all of these options with no luck, and repossession seems like a sure thing, here are some tips:
- Keep all letters and documents related to the repossession, including the envelopes;
- Remove any non-essential personal property from your car (don’t forget the glovebox and trunk). Make a detailed list of any things that you must keep in the car, like jumper cables, child seats, flashlights, tools, etc. Or better yet, take pictures or video;
- You don’t have to consent to the repo man entering your house or garage. But never use violence against the repo man. Keeping your car isn’t worth risking a violent or dangerous confrontation.
- Even if the lender is legally entitled to seize your car, the repo man can’t use violence or the threat of violence during the repossession. It’s also illegal for the repo agent to break into a locked garage or to use the police to aid in the repossession. If any of these things happen during the repossession, you should discuss the situation immediately with an attorney.
Most of these suggestions will take a while to work out, so consider keeping your car in a locked garage while you work out the details. Before you do, though, read this post because there may be criminal penalties for fraudulently concealing your vehicle if the lender is legally entitled to repossess it. You should also be proactive and discuss your situation with an attorney. Don’t wait until the repo man is knocking on your door to act, because at that point, it’s going to be very difficult for an attorney to prevent the repossession.
If you’re facing repossession and want to discuss your legal rights with an attorney experienced in vehicle repossession cases, feel free to contact me. I offer 30 minute consultations for $175 and can help you figure out the best course of action for your situation.
When you buy a car or truck on credit, the contract typically gives the lender the right to repossess the vehicle as soon as you default on your loan. The contract will tell you what events lead to a “default” but the most common one is failure to make your monthly payments on time. But the lender has to follow certain steps, otherwise the repossession may be illegal.
First, if your lender has accepted late payments, it cannot repossess the car until the loan is again in default. And the lender has to give you notice, usually in the form of letter, that it will not accept further late payments. In Minnesota, this is called a Cobb letter. If your lender has accepted repeated late payments and then seizes your car without sending you a Cobb letter, it probably has wrongfully repossessed your car.
Second, the repossession agent hired by the lender cannot breach the peace during the repossession. In most states, including Minnesota, the repossession agent has the right to take your car without any notice at any time of day or night. No court order is necessary, as long as the repo agent does not breach the peace. Breach of the peace usually occurs when the repo man has to resort to force or threats of force to take your car. Taking the car out of a locked garage is also usually considered a breach of the peace. Once the repo man breaches the peace, he loses the right to take your car without a court order. If he still seizes the car, he has wrongfully repossessed it.
If your car or truck has been wrongfully repossessed, you have the right the to sue the lender and repo agent for damages. The damages usually include the cash value of your vehicle. And if the repo man physically assaulted you during the repossession, your damages could be much higher. If you live in Minnesota and have had your car wrongfully repossessed, feel free to contact me for a free case evaluation.