Repossession is a term used to describe when
- an actual owner takes back from the borrower an object that was rented or leased, or was borrowed, either with or without compensation, or
- when a lienholder takes possession of an item from its registered owner that was used as collateral for a loan.
Repossession is a "self-help" type of action in which the party having right of ownership of the property in question takes the property back from the party having right of possession without invoking court proceedings. The property may then be sold by either the financial institution or third party sellers. The extent to which repossession is authorized, and how it may be executed, greatly varies in different jurisdictions (see below).
When a lender cannot find the collateral, cannot peacefully obtain it through self-help repossession, or the jurisdiction does not allow self-help repossession, the alternative legal remedy to order the borrower to return the goods (prior to judgment) is replevin.
The security interest over the collateral is often known as a lien. The lender/creditor is known as the lienholder.
Repossession in various jurisdictions
General
The existence and handling of repossessions varies greatly between jurisdictions. In some jurisdictions, self-help is limited to special circumstances, so in general, the right of possession can only be enforced by a court and/or other official agents.
United States
When a provision of law requires when repossession takes place, the lien holder has a non-delegatable obligation not to cause a Breach of the Peace (which is synonymous with disturbing the peace) in performing the repossession or the repossession will be reversed, and the party ordering the repossession will be liable for damages (or the lienholder will be held responsible). This requirement not to breach the peace includes even if the breach is caused by the debtor objecting to the repossession or resists the repossession. In MBank El Paso v. Sanchez (1992), 836 S.W.2d 151, where a repossession agent towed away a car even after the loanee locked herself in it, the court decided that this was an unlawful breach of the peace and declared the repossession invalid. The debtor was also awarded $1,200,000 in damages from the bank involved. Repossession also generally does not apply to real property. Real property is generally subject to a cause of action known as foreclosure.
Procedure of a repossession (United States)
In the United States, repossessions are carried out pursuant to state laws that permit a creditor with a security interest in goods to take possession of those goods if the debtor defaults under the contract that created the security interest. In particular, all 50 U.S. states and the District of Columbia have enacted (with minor variations) Article 9 of the Uniform Commercial Code, which generally permits security interest holders to repossess goods if a debtor is in default and the repossession can be conducted without a breach of the peace. Being "in default" means that the debtor has failed to fulfill his or her obligations under the contract. The most common forms of default resulting in repossession are failing to make required payments and failing to maintain adequate insurance coverage.
Many U.S. states have enacted additional laws that apply specifically to the repossession of purchased and leased automobiles, and which are intended to afford additional consumer protections. Typical requirements include mandating that auto lenders provide consumers with opportunities to either "reinstate" or "redeem" their purchase or lease contracts after their vehicles have been repossessed. A "reinstatement" entails a consumer paying all of his or her past due amounts plus the creditor’s repossession expenses, and then reacquiring the automobile as if the repossession had not occurred. A "redemption" entails the consumer paying off the entire contract balance and then being given ownership of the vehicle free and clear of any contract obligations.
Many consumers mistakenly believe that they are legally entitled to a "grace period" that prevents creditors from repossessing goods until the payments are a certain number of days overdue. In reality, however, grace periods are non-compulsory business practices that have been adopted by most consumer lenders through a term in the lending contract. There is nothing legally preventing a creditor with a security interest from repossessing the goods if a payment is late (even if it is only one day overdue), unless the lender has agreed otherwise as a binding term of contract. The only exception to this rule is if the creditor does or says something to lead the debtor to believe that the goods will not be repossessed notwithstanding a late payment. (i.e. makes a "oral contract", or orally modifies the terms of a written contract.) If a creditor tells a debtor that a payment may be made a particular number of days late, and then repossesses the goods before that date, the creditor is guilty of conversion (i.e., civil theft). That being said, unless the consumer received permission to make a late payment in writing, it may be difficult for him or her to later prove that the creditor agreed to permit the late payment. Because of the difficulty proving oral statements, some unscrupulous creditors try to lull debtors into false senses of security with a tactic sometimes called the "gab and grab". The creditor will orally agree to give the debtor extra time to make a paymentâ€"this is the "gab". But the creditor is only doing this to facilitate the repossessionâ€"the "grab". The creditor ignores the oral agreement to extend the time of payment and arranges for an immediate repossession. This tactic has been deemed unlawful by numerous courts. However, in states which have "one-party" consent laws governing the recording of telephone calls and private conversations, a consumer may record such a conversation he has with a creditor, and later admit the recording against the creditor as evidence of a de facto oral contract.
If a lender finds itself in the situation of needing to repossess property while the borrower attempts to avoid this, the dealer may contract the work of repossession out to a repossession agent. Many things can be repossessed, but most repossession agencies focus on auto repossession.
The repo agent normally uses a tow truck or pickup truck with a special towing attachment called a boom, but sometimes they pick the lock or obtain the key from the car owner.
Usually, the vehicle owner must be notified of a repossession. The repossession agent will find the car and check its information such as the serial number to make sure they have the right vehicle. If there is a match, they will attempt to hook up the car to the tow truck and tow it away or pick the lock and drive it away. However doing so does not absolve the repossession agent's requirement to be covered under an active insurance policy for the vehicle under the applicable criminal traffic laws. Thus, an agent who elects to do this may be subject to arrest for the violation of criminal traffic laws which apply to insurance requirements.
Repossession does not necessarily satisfy the loan. If the repossessor sells the asset for an appropriate amount, and if that amount is less than the amount of the loan, and if the repossessor sues the debtor for the balance (plus reasonable fees if applicable) in a timely manner, the debtor may be liable to pay the balance (sometimes called the "deficiency"). However, the creditor will be liable for contributory negligence if the creditor auctions the property for less than applicable blue-book value. This is because such a failure directly contributes to any remaining deficiency.
Whether a debtor is actually liable for a balance depends on jurisdiction and on the details of the loan contract. In the case of a nonrecourse debt, for example, the debtor is not personally liable for a deficiency.
United Kingdom
England and Wales
These numbers and text relate to home mortgage repossessions in England.
- Number of repossessions in England
Source: Council of Mortgage Lenders and The Ministry of Justice.
In 2010, there looks to be a downtrend though, as lenders seized 9,400 properties in April, May and June, 400 fewer than in the first quarter of 2010, according to the Council of Mortgage Lenders (CML).
Germany
Repossession in the form of self-help is generally illegal, and an act of self-help repossession constitutes theft. In almost all cases, if the debtor is unable or unwilling to pay an outstanding debt, the creditor must first obtain either a court order authorising the repossession (Vollstreckungsbescheid, only possible if the debtor does not contest the debt) or a regular court judgment. The debt must then be collected by an officer of the court (Gerichtsvollzieher); only this officer of the court may use force (such as forcing open a door, or enlisting help from police forces) to collect the debt. In particular, neither the creditor nor private debt collection agencies may use force or seize property against the will of the debtor.
Some very specific forms of self-help repossession are legal. For example, a landlord may seize the tenant's property in the rented object if there are outstanding payments.
See also
- Replevin
- Detinue
- Lien
- Foreclosure
- Distraint
References
External links
- UK Citizens Advice Bureau
- USA FTC Facts for Consumers on Vehicle Repossession
- New Zealand Consumer aid in dealing with Repossession
- CML Stats & Forecast
- Ministry of Justice
- UK The Homeowners Rescue Advice Centre
- Michigan Tax Foreclosed Real Property Auction Results
