Repossession
Encyclopedia
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).
In some places self-help repossession is not permitted; the lien holder is required to go to court to obtain an order of replevin
. However, in some states, repossession is mandatory and suits of replevin are not permitted.
Unscrupulous creditors may try to lull a debtor into a false sense of security by the use of 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. See, e.g., Demitro v. GMAC Corp., 388 Ill. App. 3d 15 (Ill App. Ct. 2009).
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.
The repo agent normally uses a tow truck
or pickup truck
with a special towing attachment called a boom, but sometimes they pick the lock or obtain the key from the car owner.
Usually the vehicle owner must be notified of a repossession. The repossession agent will find the car and check the VIN
to make sure they have the right car. They will then 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.
Source: Council of Mortgage Lenders
and The Ministry of Justice.
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).
However, repossession lawyer Moore Blatch advises that whilst the number of repossessions is falling, the number of people in arrears
by 3 months or more is actually significantly higher. At the end of June 2009 the number of people in arrears by 3 months or more was 270,400 compared with 264,700 in the first quarter, and 152,700 in the second quarter of 2008 - a 77% increase over 12 months. The alternative quoted measure of arrears, preferred for historical comparisons, is the number of loans in arrears
by 2.5% or more of the outstanding mortgage balance. The number of loans in arrears by 2.5% or more totalled 205,600 (1.85% of all loans), which was only 1,700 higher than the previous quarter’s figure of 203,900, but a 46% increase from 139,700 at the end of the second quarter of 2008.
* Source: Halifax Price Index Regional Price Update - Q2 (April–June 9)
** Source: Properties sold by Whitehot Property - Q2 (April–June 9).
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.
Financial institution
In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries...
taking back an object that was either used as collateral
Collateral (finance)
In lending agreements, collateral is a borrower's pledge of specific property to a lender, to secure repayment of a loan.The collateral serves as protection for a lender against a borrower's default - that is, any borrower failing to pay the principal and interest under the terms of a loan obligation...
or rented or leased in a transaction. Repossession is a "self-help
Self-help (law)
Self-help, in the sense of a legal doctrine, refers to individuals' implementation of their rights without resorting to legal writ or consultation of higher authority, as where a financial institution repossesses a car on which they hold both the title and a defaulted note...
" 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
Right of possession
The right of possession means that someone currently holds something in hand and this person may be the temporary keeper or the long-term owner of an object.This term is most commonly used in regards to property and is a land-backed asset...
without invoking court proceedings. The property is then sold on by either the financial institution
Financial institution
In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries...
or 3rd party sellers. The extent to which repossession is authorized, and how it may be executed, greatly varies in different jurisdictions (see below).
Procedure of a repossession
Repossession is usually carried out in accordance with a purchase contract or credit contract, in which the consumer agrees that the seller (the "lienholder") may repossess the object if the signers are past the grace period (generally for prime lenders the critical number is 30 days late making an installment payment but can vary based on how many payments have already been made, the length of the business relationship, reason why past due, etc.). Contracts that authorize repossession also usually specify additional fines that the consumer must pay to the seller, ostensibly to cover the seller's costs of the repossession and of depreciated value of the object, as the seller is now in possession of a "used" object.In some places self-help repossession is not permitted; the lien holder is required to go to court to obtain an order of replevin
Replevin
In creditors' rights law, replevin, sometimes known as "claim and delivery," is a legal remedy for a person to recover goods unlawfully withheld from his or her possession, by means of a special form of legal process in which a court may require a defendant to return specific goods to the...
. However, in some states, repossession is mandatory and suits of replevin are not permitted.
Unscrupulous creditors may try to lull a debtor into a false sense of security by the use of 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. See, e.g., Demitro v. GMAC Corp., 388 Ill. App. 3d 15 (Ill App. Ct. 2009).
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.
The repo agent normally uses a tow truck
Tow truck
A tow truck is a vehicle used to transport motor vehicles to another location , or to recover vehicles which are no longer on a drivable surface.Towing services are generally provided by an emergency road service operator...
or pickup truck
Pickup truck
A pickup truck is a light motor vehicle with an open-top rear cargo area .-Definition:...
with a special towing attachment called a boom, but sometimes they pick the lock or obtain the key from the car owner.
Usually the vehicle owner must be notified of a repossession. The repossession agent will find the car and check the VIN
Vehicle identification number
A Vehicle Identification Number, commonly abbreviated to VIN, is a unique serial number used by the automotive industry to identify individual motor vehicles. VINs were first used in 1954...
to make sure they have the right car. They will then 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
Nonrecourse debt
Non-recourse debt or a non-recourse loan is a secured loan that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender/issuer can seize the collateral, but the lender's recovery is limited to the...
for example, the debtor is not personally liable for a deficiency.
General
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.U.S.
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, 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.UK
These numbers and text relate to home mortgage repossessions in the United Kingdom.- Number of repossessions in the UK
Year Claims Issued Claims Leading To An Order Properties Taken Into Possession 1990 145,350 103,508 43,900 1991 186,649 142,905 75,500 1992 142,162 126,881 68,600 1993 116,181 105,283 58,600 1994 87,958 77,681 49,200 1995 84,170 75,258 49,400 1996 79,858 71,203 42,600 1997 67,073 57,156 32,800 1998 84,836 66,055 33,900 1999 77,818 53,448 29,200 2000 70,140 48,403 22,900 2001 65,555 45,812 18,200 2002 62,862 40,430 12,000 2003 65,373 39,784 8,500 2004 76,993 45,356 8,200 2005 114,733 68,922 14,500 2006 131,248 88,018 21,000 2007 137,725 90,654 25,900 2008 142,741 111,763 40,000 2009 N/A N/A 48,000
Source: Council of Mortgage Lenders
Council of Mortgage Lenders
The Council of Mortgage Lenders is an industry body representing mortgage lenders in the United Kingdom.Its members consist of banks, building societies and specialist lenders and represent 98% of mortgage lending in the UK....
and The Ministry of Justice.
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).
However, repossession lawyer Moore Blatch advises that whilst the number of repossessions is falling, the number of people in arrears
Arrears
Arrears is a legal term for the part of a debt that is overdue after missing one or more required payments. The amount of the arrears is the amount accrued from the date on which the first missed payment was due...
by 3 months or more is actually significantly higher. At the end of June 2009 the number of people in arrears by 3 months or more was 270,400 compared with 264,700 in the first quarter, and 152,700 in the second quarter of 2008 - a 77% increase over 12 months. The alternative quoted measure of arrears, preferred for historical comparisons, is the number of loans in arrears
Arrears
Arrears is a legal term for the part of a debt that is overdue after missing one or more required payments. The amount of the arrears is the amount accrued from the date on which the first missed payment was due...
by 2.5% or more of the outstanding mortgage balance. The number of loans in arrears by 2.5% or more totalled 205,600 (1.85% of all loans), which was only 1,700 higher than the previous quarter’s figure of 203,900, but a 46% increase from 139,700 at the end of the second quarter of 2008.
- Average repossessed sales price.
Region HPI Regional Average* (£) whitehotproperty.co.uk average** (£) Percentage difference South East England 206,426 181,947 -13.5% East Anglia 158,205 140,503 -12.6% North England 134,311 123,368 -8.9% Greater London 241,306 224,833 -7.3% South-West England 179,428 167,846 -6.9% Yorkshire & Humberside 120,988 114,725 -5.5% East Midlands 135,873 131,988 -2.9% West Midlands 152,598 150,329 -1.5% North West England 123,795 129,757 +4.6% AVERAGE 161,437 151,700 -6.4%
Germany
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.
External links
- Government Auctions
- Repossession Auctions
- UK Citizens Advice Bureau
- USA FTC Facts for Consumers on Vehicle Repossession
- New Zealand Consumer aid in dealing with Repossession
- CML Stats & Forecast
- Ministry of Justice
- UK The Homeowners Rescue Advice Centre
- Michigan Tax Foreclosed Real Property Auction Results