They want to take my car!
If you borrowed money to buy your car and you have fallen behind on your payments, the bank or finance company that loaned you the money may want to repossess your car. This article will tell you why and how they can do that, and what happens next. It will also tell you what you can do to keep a repo from happening.
Why can the bank take my car?
A “Security Agreement” makes it legal for the bank to take your car.
When you borrowed the money to buy the car, the bank asked you to sign an agreement called a Note. A Note is a legally enforceable agreement which sets out what the bank expects of you, and what the bank will do for you. The Note will tell you the amount of money the bank is going to loan you, what your payments are, and how many of them you have to pay. It also contains a section called a Security Agreement. The Security Agreement says that you are giving the bank the right to repossess your car if you fall behind on your payments. The bank wants you to give it this right so it can be sure it will be paid back. If you fall behind, the bank can come and take your car and sell it to get back the money it loaned you. The Security Agreement is why the bank can repossess your car and not commit a crime. If there is no Security Agreement and the bank takes your car, they are committing an offense called Conversion.
When can the bank take my car?
Before the bank 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 days late; some say sooner; some say later. New Hampshire state law says you cannot be in default unless your payment is ten or more days late. 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 bank 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 banks and other lenders will tell you and ask you if you can get your payments caught up. 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 bank will try to take it from you.
The bank can take your car only if you signed a valid Security Areement and are in default.
How can the bank take my car?
The bank 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 repo company breaks into the garage to get the car, they have breached the peace. If you confront the reposession 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 reposession company has a police officer with it during the repossession, this is a violation of your Constitutional Rights. However, the repossession company or the bank 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 bank 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 bank must allow you to do so immediately. Then the bank will sell the car in hopes of getting its money back. The bank may sell the car any way it wants so long as the sale is commercially reasonable. That means the bank 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, that sale may not be commercially reasonable.
When the bank sells your car, it must do so in a commerically reasonable manner.
Before the bank can sell the car, it should tell you where and when the sale will take place. This is 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 bank should write to you and tell you how much you owe on the car (the debt), how much the bank spent to sell the car (the bank's costs), and how much the car sold for (return). The bank 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 bank $500 to repossess and sell the car, the total debt is $5500. If at auction it sold for only $3500, the deficiency is $2000 ($5500 - $3500). The bank 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, that results in a Surplus. The bank then owes you the Surplus.
For instance, if we use the same car above with the debt of $5000 and costs of $500, but it sells for $7000, then there is a surplus of $1500, which the bank 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 bank or 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 so 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 bank is going to try to repossess your car, you have a decision to make. If you voluntarily give the car back to the bank, 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 bank is likely to get the car sooner or later.
For more information about this topic, go to the Federal Trade Commission's webpage on Vehicle Repossession and New Hampshire Consumer Protection Agency. This pamphlet 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.