Repossession

Repossession, colloquially repo, 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. Repossession, colloquially repo, 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. 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. Repossession also generally does not apply to real property. Real property is generally subject to a cause of action known as foreclosure. 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 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. 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.