Auto Repossession
They want to take my car!
Why can the lender take my car?
A “security agreement” makes it legal for the lender to take your car.
When you borrowed the money to buy the car, the lender asked you to sign an agreement called a “note.” A Note is a legally enforceable agreement which sets out what the lender expects of you, and what the lender will do for you. The note will tell you the amount of money the lender is going to loan you, what your payments are, and how many payments you must make. It also contains a “security agreement.” The security agreement says that you are giving the lender the right to repossess your car if you fall behind on your payments. The lender wants you to give it this right so it can be sure it will be paid back. If you fall behind, the lender can come and take your car and sell it to get back the money it loaned you. The Security Agreement is why the lender can repossess your car and not commit a crime. If there is no security agreement and the lender takes your car, they commit an offense called “conversion.”
When can the lender take my car?
Before the lender can repossess your car, there must be a security agreement that you have signed. Also, you must be in default on your loan. Default means that you are too far behind in your payments. Normally, the note tells you when you will be in default. Some notes say you are in default if your payment is thirty (30) days late; some say sooner; some say later. New Hampshire state law says you cannot be in default unless your payment is ten (10) or more days late. The lender must send you a notice of your default at that time. If the note says you are in default if your payment is less than ten days late, that part of the note is not enforceable.
The lender can take your car only if you signed a valid Security Agreement and if you are in default.
If you do default on your loan, most responsible lenders will tell you and ask you if you can get your payments caught up. New Hampshire state law says you have 21 calendar days to get your payments caught up, which is known as “curing” your default. If you cannot catch up, most responsible lenders will ask you to voluntarily give up the car. If you do not give the car up, the lender will try to take it from you.
The lender can take your car only if you signed a valid security agreement and are in default.
How can the lender take my car?
The lender can take your car almost any way it wants to, so long as it does not “breach the peace.” A breach of the peace happens whenever violent force is used or is provoked. For instance, if your car is locked in a garage and the repossession company breaks into the garage to get the car, they have breached the peace. If you confront the repossession company and tell them to leave your car alone, they must do so or they risk a breach of the peace. This is why cars are frequently repossessed at night. If the owner is sleeping there will be little chance of a breach of the peace.
If you are there when the repossession takes place, the repossession company is supposed to let you remove your personal belongings from the car. This includes anything you have in the car; but usually does not include accessories you have installed in the car.
Also, the repossession must take place without any assistance by the police. If the repossession company has a police officer with it during the repossession, this is a violation of your constitutional rights. However, the repossession company or the lender should inform the police after the repossession has taken place.
The repossession company cannot breach the peace when it takes your car.
What happens after the repossession?
After the lender takes your car back, it will hold onto the car for a short while. If you have not been able to remove your personal belongings yet, the lender must allow you to do so immediately. Then the lender will sell the car in hopes of getting its money back. The lender may sell the car any way it wants so long as the sale is commercially reasonable. That means the lender must sell the car for a reasonable amount of money and in a reasonable manner. Most sales of repossessed cars take place at an auction. As long as the auction is well attended and well advertised, auction sales are generally considered to be commercially reasonable. However, if the car is sold at a price that is dramatically lower than the retail value, the sale may not be commercially reasonable.
When the lender sells your car, it must do so in a commercially reasonable manner.
Before the lender can sell the car, it should tell you where and when the sale will take place. It does this so that if you want to attend and bid on your car, or if you just want to see how the sale goes, you can do so.
After the car is sold, the lender should write to you and tell you how much you owe on the car (the debt), how much the lender spent to sell the car (the lender’s costs), and how much the car sold for (return). The lender has the right to add the costs to the debt. If the debt plus the costs is more than the car sold for, the difference is called a “deficiency.”
For instance, if you owed $5000 on the car and it cost the lender $500 to repossess and sell the car, the total debt is $5500. If at auction the car sold for only $3500, the deficiency is $2000 ($5500 – $3500). The lender is legally allowed to charge you for the deficiency.
On the other hand, if the car sells for more than the debt plus the costs, then that results in a “surplus.” The lender owes you the surplus.
For instance, if we use the same car as above with the debt of $5000 and costs of $500, but it sells for $7000, then there is a surplus of $1500, which the lender owes you.
How do I avoid a repossession?
If you get behind on your car payments, you may be looking at a repossession. The best way to avoid a repossession is to call your lender and try to work out a way to pay back the amount you are behind while keeping up with your current payments. Usually a responsible lender will be willing to talk about this as long as you do not wait until you are so far behind that there is no hope of catching up.
You should also be absolutely sure that you signed a valid security agreement, and that you are in default. For this you may need legal advice. Show your copy of the note to an attorney to be sure that there is a valid security agreement. If there is none, then the repossession may not take place. The attorney can also figure out whether you are in default.
If it is hopeless and you are sure the lender is going to try to repossess your car, you have a decision to make. If you voluntarily give the car back to the lender, you may save the repossession charges. If you want to resist the repossession, you will have to make it impossible for the repossession company to take the car without a breach of the peace. Usually, however, these efforts are futile, as the lender is likely to get the car sooner or later.
For more information about auto repossessions, check out the Federal Trade Commission’s website for consumers: Vehicle Repossession. This information is based on the law in effect at the time of publication. It is issued as a public service for general information only, and is not a substitute for legal advice about the facts of your particular situation.