In this post, we will learn how to spot an illegal repossession, what to watch out for after a repossession happens, and what can be done to prevent an impending repossession.
How to know if a repossession is wrongful
When you buy a car or truck on credit, the contract typically gives the lender the right to repossess the vehicle as soon as you default on your loan. The contract will tell you what events lead to a "default" but the most common one is failure to make your monthly payments on time. But the lender has to follow certain steps, otherwise the repossession may be illegal.
You must be behind on payments. It would seem that this goes without saying, but I occasionally talk to people who weren't late on their payments when their vehicle was repossessed. I've also heard of situations where the vehicle was repossessed even after the loan was paid in full.
If your lender has accepted late payments, they must send you a letter first. In Minnesota, this is called a Cobb letter. The letter must give you notice that although the lender has accepted late payments from you in the past without repossessing, it now requires you to strictly comply with the payment due dates or it may repossess. This notice requirement may be unique to Minnesota.
The repo agent can't breach the peace during the repossession. In most states, including Minnesota, the repossession agent has the right to take your car without any notice at any time of day or night. No court order is necessary, as long as the repo agent does not breach the peace. Breach of the peace usually occurs when the repo man has to resort to force or threats of force to take your car.
The repo man can't break into a locked garage. Minnesota law forbids the repossession agent from breaking into your garage to seize your vehicle. But be careful about concealing your vehicle to prevent an otherwise lawful repossession.
The police cannot actively help the repossession. Sometimes, the repo company enlists the local police department to stand by during the repossession. While this is clearly designed to intimidate you into giving up your vehicle without a fuss, it probably isn't illegal as long as the police just stand by. But if the officers actively engage in the repossession, they may have broken the law.
If your car or truck has been wrongfully repossessed, you have the right the to sue the lender and repo agent for damages. Depending on the circumstances, the repo company may have to pay your attorney fees and court costs.
What to watch for after your vehicle was repossessed
Even if the repossession was strictly by the book, there are a number of things you need to know about the post-repossession process. In most cases, once your lender repossesses the vehicle they will sell it at an auction and apply the sale proceeds to your loan balance. Keep an eye on a few things during this process:
The lender must send you a letter before and after the sale. The pre-sale letter must tell you when, where, and how the vehicle will be sold. It must also tell you how much money you have to pay to get the vehicle back. The post-sale letter must tell you how much the vehicle was sold for and explain whether you still owe money on the loan.
You may get sued if there is still a balance on your loan. This is called a deficiency lawsuit. It happens in cases where the auction sale proceeds were not enough to pay off the full balance of the loan. In this case, the lender may sue you to recover the remaining balance. Fortunately, there are a number of ways to defend a repossession deficiency lawsuit.
What to do if your vehicle hasn't been repossessed yet
If the lender is just threatening to repossess, but hasn't seized your car yet, there are some options to avoid the repossession.
Can you re-finance the loan so that you can better afford the payments? Credit unions may offer better rates than more conventional auto lenders.
Can you sell the vehicle to a private party and get enough cash back to repay the loan? This is probably a long shot, but may be worth exploring just to cover all your bases.
Is filing bankruptcy an option? Both Chapter 7 and Chapter 13 bankruptcy may provide you with a number of attractive solutions to avoid repossession.
If you’ve explored all of these options with no luck, and repossession seems like a sure thing, here are some tips. First, keep all letters and documents related to the repossession, including the envelopes. Second, remove any non-essential personal property from your car (don’t forget the glovebox and trunk). Make a detailed list of any things that you must keep in the car, like jumper cables, child seats, flashlights, tools, etc. Or better yet, take pictures or video. Finally, keep in mind that you don’t have to consent to the repo man entering your house or garage. But never use violence against the repo man. Keeping your car isn’t worth risking a violent or dangerous confrontation.