Vehicle Repossession: Consumers RightsWhen a vehicle is purchased "on credit," the buyer essentially borrows money from the seller and agrees to repay it, along with interest and other charges, through periodic payments over a set period. During the transaction, the seller is given a "security interest" in the vehicle and becomes a creditor of the buyer. As a creditor, the seller possesses certain rights in the vehicle until the debt is paid in full. If the buyer defaults (usually by missing one or more payments), the seller often may repossess the vehicle.Vehicle Repossession BasicsBecause repossession of a vehicle is largely governed by state law, reference to the applicable law in a particular locality is recommended. However, many common principles and procedures exist among jurisdictions. In fact, the similarities are such that the Federal Trade Commission offers a publication with generalized advice and information about vehicle repossession.In most states, once the buyer defaults on his loan, creditors maintain the right to repossess or "take back" the vehicle, without warning. The contract and security agreement typically set forth conduct that constitutes default. After the buyer defaults, so long as the creditor does not breach the peace, he may have legal authority to repossess the vehicle: At any hour of the day Without prior notice Wherever it is located – even on the buyer's property Without an advance court order However, should the creditor "breach the peace" during the repossession, (e.g., force is used or threatened), a penalty may be assessed against the creditor. Further, the creditor may be required to compensate the buyer. In some states, simply repossessing the vehicle over the buyer's protests may constitute a breach of the peace. Applicable Requirements Following Vehicle RepossessionThe procedures required after a vehicle is repossessed similarly vary from state to state. Most states have enacted specific laws that govern not only the manner of repossession, but also how the creditor may dispose of the vehicle.Although the creditor has the option to keep the vehicle, he typically does not do so. Instead, the creditor will usually choose to sell the repossessed vehicle, publicly or privately, to satisfy the outstanding debt (in whole or in part). Further, the creditor must inform the buyer of his intended action. The procedures and restrictions associated with any sale of a repossessed vehicle are normally specifically set forth in statutes, which also vary from state to state. However, as a general rule, if the creditor violates applicable state law, he may lose any rights he previously had in the vehicle. For instance, a creditor typically has the right to seek a "deficiency judgment" when selling the vehicle does not produce sufficient funds to satisfy the outstanding debt (plus the costs of repossession). The creditor may lose this right for failure to follow state law procedures and requirements. Under certain circumstances, the creditor may also have to pay damages to the buyer. In most states, the buyer has the right to pay the outstanding debt (and the costs of repossession) and get the vehicle back. When repossession is an issue, the buyer may wish to seek advice regarding his rights and options. © 2006 NextClient.com, Inc. All rights reserved. |