||The examples and perspective in this article deal primarily with the English-speaking world and do not represent a worldwide view of the subject. (December 2010)|
Repossession is generally used to refer to a financial institution taking back an object that was either used as collateral or rented or leased in a transaction. 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 is then sold on by either the financial institution or 3rd 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.
Repossession in various jurisdictions
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.
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.
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. 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). 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. 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 payment—this is the "gab". But the creditor is only doing this to facilitate the repossession—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.
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.
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 hook up the car to the tow truck and tow it away or pick the lock and drive it away.
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").
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.
England and Wales
These numbers and text relate to home mortgage repossessions in England.
- Number of repossessions in England
|Year||Claims Issued||Claims Leading To An Order||Properties Taken Into Possession|
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).
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.
- Section 9-609 of the Uniform Commercial Code
- Web sites describing Ohio's
- See, e.g., Demitro v. GMAC Corp., 388 Ill. App. 3d 15 (Ill App. Ct. 2009).
- Vehicle Repossession: Understanding the Rules of the Road , Federal Trade Commission, November 2008. Retrieved 2011-02-16
- Home repossessions fall further in UK - August 12, 2010
- Bürgerliches Gesetzbuch, §§ 229, 562b, 592 etc.