Consumers’ Rights – Repossession Notices
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When you stop making payments on certain debts, creditors can repossess your property without giving you notice. In many states, the lender doesn’t even have to tell you it’s going to repossess. No matter how far behind you are on your payments, you have rights. This article will explain the repossession process, how it applies to different property, post-repossession notices, and how to get your property back after repossession.
Written by Attorney Tori Bramble.
Updated October 12, 2021
If you’ve experienced a job loss, reduction in work hours, or other financial problems, it can be hard to pay your car note or other debts secured by your personal property. When you stop making payments on certain debts, creditors can repossess your property without giving you notice. In many states, the lender doesn’t even have to tell you it’s going to repossess.
No matter how far behind you are on your payments, you have rights. This article will explain the repossession process, how it applies to different property, post-repossession notices, and how to get your property back after repossession.
The Repossession Process
Repossession happens when your lender takes back personal property you used to secure a loan. This property is also called collateral. Lenders are able to repossess this probably because they have a security interest in it, which means they have a legal claim to it. When you miss payments, the lender can repossess the property or pay someone (commonly called the repo man) to get it back to sell.
What’s a security interest?
A security interest is a lien on personal property put up by a borrower to get a loan. A security interest is the lender’s insurance policy. If you don’t pay back your loan as promised, your lender can get the property back and sell it to get back some or all of the money it lent to you.
Every state has a repossession process for cars and other collateral. The process varies by state and depends on the laws and the financing contract for personal property. Your contract will explain the state repossession laws that apply to your situation. Depending on your state, after a lender repossesses your personal property, you may be entitled to a repossession notice. Most people receive a Notice of Intent to Sell Property with important information by mail.
Jewelry, vehicles, boats, artworks, and any other personal property can be repossessed. When real estate is repossessed it’s called a foreclosure.
Notice Prior to Repossession of a Vehicle
In many states, lenders don't have to notify borrowers before repossessing their vehicle, and this can happen as soon as the borrower misses one payment. In other states, the lender must send a notice to the borrower prior to repossession. If you fall behind on your car payments, you can look at your purchase contract to see how many payments you can miss before your lender considers you delinquent and can repossess.
State laws differ widely. Some lenders will send notices before starting the repossession process. Generally, there are two kinds of notices lenders send to start the repossession process: an acceleration notice and notice and opportunity to cure. If your state requires the lender to notify you before repossession, make sure to read the notice thoroughly. It will include details about how much you’ll need to pay to get back the car and how much time you have to pay it before your personal property is sold at a private sale or auction.
If you receive an acceleration notice, your lender is telling you to pay the full loan amount. They’ve accelerated your future payments because of the default and the whole loan becomes due at once. If a lender sends you a notice and opportunity to cure, you’ll have the opportunity to pay the past-due amount by a certain deadline to avoid repossession.
Military borrowers have special protections under the Servicemembers Civil Relief Act (SCRA). By law, lenders have to get a court order before they can repossess a servicemember’s vehicle.
Since state laws vary, consider contacting a consumer protection attorney to get more information about your state’s repossession laws and required notices.
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Post-Repossession Notice – Vehicles
Though not all lenders need to notify you prior to repossession, they will have to notify you following it. If a lender does repossess your vehicle, they are then required to provide a notice of default and a right of redemption/and or right of reinstatement.
Redeeming a Vehicle
In most states, the lender must give you a chance to get your car back after repossession by giving you a chance to redeem the loan. If your state requires this, the lender will send you a notice explaining the steps necessary to redeem (pay back) your loan, including the amount you'll be required to get your car back. The right of redemption/reinstatement includes important information including your outstanding balance, the deadline to redeem the loan, and how you can pay off your loan and get the vehicle back.
Reinstating a Car Loan
Some states give borrowers the right to reinstate their car loans. Reinstatement of a car loan depends on your loan agreement and state laws. If your state allows reinstatement, you’ll receive a notice that will tell you the amount you’ll have to pay to catch up on the payments. You may also have to cover repossession-related costs to bring the loan back in good standing.
In most states, you’ll have to pay the whole loan balance. Check your state laws to know your rights. A local attorney or consumer protection agency will let you know if your lender is complying with redemption laws. You can also find how to buy a car after repossession if you don’t reinstate it.
Notices Related to Property Found in the Vehicle
If you have personal items in your car when it’s repossessed, you’ll have the right to get them back. Lenders aren’t allowed to keep or sell personal items found in repossessed vehicles. In some states, the lender has a deadline to send you a written notice with an inventory of the items in the car when it was taken.
Notice of Sale
If you don’t want to reinstate your car loan or redeem it by paying the entire balance, the lender must send you written notice if it plans to sell the car. If the car is being sold at a private sale the lender must tell you the date it plans to sell the vehicle. If the lender plans to sell the car at a public auction, it’s required to tell you the time, date, and location of the auction.
Notice After a Car Is Sold
Once the vehicle is sold, the lender has to tell you what it received from the private sale or auction and how it applied the proceeds against the loan balance, including reasonable costs of repossession and expenses, including storage and cleaning fees. Once these expenses are applied, the lender must tell you the final loan balance. Sometimes the vehicle is sold for more than the balance and repossession fees combined, but more often, you’ll owe a balance.
If a Car Is Worth More Than What a Debtor Owes
Though it’s rare, sometimes a car will sell for more than what you owe on the loan. In this case, there will be money left over, or a surplus. If there’s a surplus, usually the lender has to pay you the extra money it gets from the sale. But if there’s a loan cosigner, they have the right to the surplus money. The lender will give the cosigner a written breakdown of the surplus amount when it pays the money surplus to them.
If a Car Is Worth Less Than What a Debtor Owes
Usually, after a repossessed car is sold, the borrower will owe a deficiency balance. This means the sales proceeds didn’t cover the car balance and repossession expenses. When this happens, credits must tell the borrower what the deficiency amount is. If the lender doesn’t send the required deficiency notice, you may be off the hook for paying the deficiency. Speak with a lawyer if you didn’t receive a deficiency notice. Often borrowers won’t be able to pay the deficiency balance. So in most states, lenders sue for deficiency balances to try to collect the deficiency from the borrower.
If you’re behind on your car payments, you risk defaulting on your car loan and having your vehicle repossessed by the lender or a repo company. Though repossession is stressful, you still have rights before, during, and after this process. Repossession laws vary from state to state. In some states, lenders must notify you prior to repossessing your vehicle, even though they can do it after you miss a single payment. In other states, lenders aren’t required to notify you prior to repossession, but they must notify you following a repossession.
If you lose your car through repossession, you’ll usually have an opportunity to reinstate your loan or redeem your vehicle, though it may require you to pay the full loan balance. If you don’t redeem your car and it’s sold at auction, there may be a surplus or, more commonly, a deficiency.