What is wrongful repossession?

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.

In Minnesota, be careful about hiding your vehicle to prevent a lawful repossession

We often get calls from people whose vehicles are about to be repossessed. The callers sometimes tell us that the repossession agent threatened to have them arrested if they don't tell him where the vehicle is located and want to know whether they are guilty of a crime by refusing to tell the repo agent where the vehicle is. Under Minnesota law, it's a crime if:

  • (1) You are (a) legally obligated for an auto loan; (b) you know where the vehicle that is secured by the auto loan is located; and (c) with intent to defraud, you refuse to disclose the vehicle's location to a creditor or repossession agent that is legally entitled to repossess the vehicle.

  • (2) You--whether you are the borrower or not--conceal the vehicle if you know that the creditor is legally entitled to repossess the vehicle.

The potential penalty, provided by Minnesota Statute section 609.62, is imprisonment for up to three years or a fine of up to $6,000.

So under Minnesota law, it may be a crime to refuse to disclose the location of, or otherwise conceal, a vehicle that your lender is legally entitled to repossess. The key phrase here, though, is "legally entitled to repossess." You may have defenses to the repossession, which would alleviate the potential criminal penalties because the lender isn't legally entitled to repossess your vehicle. It's probably best to be proactive and discuss the situation with an attorney before the repo man is knocking on your door.

It's definitely worth noting that we've never been involved in a case where a repossession agent or lender filed criminal charges against someone for refusing to tell them where the vehicle was or for concealing the vehicle. In my experience, repo agents use the threat of arrest to intimidate consumers into turning over the vehicle and rarely, if ever, act on them. But there's a first time for everything and consumers should tread carefully because of the potential for criminal penalties.

You can sue a repo man who breaches the peace when repossessing your car

I've talked to a couple people lately who have told me about some really awful behavior by repossession agents. One person was run off the road by two repo agents working in tandem. Another was forced up against a wall and told that she was going to jail if she didn't turn her car over. A third was physically dragged out of her car by the repo agent.  Needless to say, all of these people were terrified by their experiences. All three of them called the police, only to be told that the police would not get involved.

Fortunately for these people, there is something that they can do. Although Minnesota law allows repossession agents to take your vehicle without a court order, they can't create a breach of the peace while doing it. Running someone off the road, slamming someone against a wall and threatening to put them in jail, and dragging someone out of their car probably all result in a breach of the peace. In addition to liability for a breach-of-the-peace repossession, the repo man may also be liable for other damages as well, depending on the severity of his conduct.

You can sue a repo agent that has breached the peace while repossessing your vehicle and receive money damages.

The police can't help a repossession agent seize your car

An alarming trend that I've noticed lately is police officers getting involved in a self-help repossession. Many times the consumer calls the police after the situation escalates and becomes violent. Occasionally, the repo agent gets the police to accompany him to the scene of the repossession. In my experience, police involvement during a repossession ranges from keeping the peace to actively helping the repo agent take the vehicle. But at what point does this police involvement become illegal? Before I answer that, here's a little background: under the U.S. Constitution, the state can't take your property without notice and an opportunity to be heard. This is called due process. But in states like Minnesota that allow self-help repossession, the creditor can repossess your vehicle without any court involvement whatsoever. Notice is not required and there's no opportunity for you to be heard before your car is taken. So why isn't this a violation of the Consitution? Because the Constitution only gives you due process rights when your property is seized by a government, or state, actor. Private repossession companies aren't state actors. But police officers are. So if a police officer assists in the repossession of your car, it's potentially a violation of your constitutional rights because a state actor is depriving you of your property without due process.

Of course, it's not always easy to determine at what point the police go from merely preventing a breach of the peace to actively assisting in the repossession. Most of the courts that have looked at this issue have noted that the police may act to diffuse a volatile situation, but may not aid the repossession agents in such a way that the repossession would not have occurred but for their assistance. If the police threaten you with arrest or command you to turn over the vehicle, they've probably crossed the line from keeping the peace into active involvement. This would violate your rights to due process and you may be entitled to bring a lawsuit against the police and repossession company for wrongfully repossessing your vehicle.

What to watch out for if your car is repossessed

Repossession of a car can be a scary experience. The law requires that the lender (and repossession agent) treat you with respect and dignity. Here are some rules they need to follow:

The repo agent may not breach the peace

This means the repo agent can't:

  • Forcibly remove you from the car

  • Stop you while you're driving

  • Pretend to be a law enforcement agent, or

  • Break into your closed garage to get the car

Any of these things may be a violation of the law and the lender and repo agent could be liable to pay you damages.

They can't repo your car when you're not in default

Your financing contract should describe what is a default on the loan and what isn't. Simply, your car can't be repossessed if it's not in default. But it gets a little more tricky. If the lender has continued to accept payments after an earlier default, it may not repossess the car unless it gives you written notice that it will no longer accept payments.

They have to give you written notice of what's going on

If your lender repossesses your car, before selling the collateral it has to give you written notice of when, where and how the car will be sold. In addition, it has to notify you how much money you would need to pay to get the car back anytime before it is sold.

After a repossession, the lender must send you a notice stating how much the collateral was sold for, and containing a calculation of any amount the consumer is due back from the sale (after deducting the loan amont) or how much the consumer owes (the legal term is a deficiency). It's important to remember that a lender cannot collect a deficiency from you if it has not sent you notice of how your deficiency was calculated.

How to defend a repossession deficiency lawsuit

After your lender repossesses your car, they will sell it and apply the sale price to the amount remaining on your loan. In most cases, there is still a deficiency remaining on your loan after applying the sale proceeds. More often than not, your lender will then sue you for that deficiency. If that happens, here are some possible defenses to the deficiency lawsuit:

  • Statute of limitations. In most Minnesota debt collection cases, such as credit cards, the statute of limitations is six years. However, the statute of limitations for a repossession deficiency claim is four years. If the creditor brings the deficiency lawsuit over four years after you made your last payment, the statute of limitations on the claim may have passed.

  • Incomplete or ineffective assignment of the loan. Like credit card debts, many repossession deficiency accounts are sold to third-party debt buyers. The debt buyer must be able to provide a complete and detailed chain of title of ownership of your account. Often, the chain of title is either incomplete or does not specifically identify your account, but rather a large batch of accounts.

  • The sale of your car after repossession was not commercially reasonable. The general rule is that every aspect of the sale of a car after repossession must be commercially reasonable. This essentially means that the creditor must act in good faith and use its best efforts to get a fair price for your car.

  • The lender failed to send you the required pre- and post-sale notices. 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. Failure to send these letters may prevent the lender from collecting a deficiency.

  • The creditor accepted your car as a full satisfaction of the loan. Occasionally, creditors tell people that if they turn over their car voluntarily, they will not pursue the person for a deficiency. Creditors may later deny making this promise. Some courts have held that promising not to pursue you for a deficiency if you turn over your car voluntarily bars that creditor from pursuing a deficiency.

It's also possible that the creditor may not have followed the proper procedures when they repossessed your car. This may allow you to bring a counterclaim against them in the deficiency lawsuit. While a counterclaim is not technically a defense to a deficiency lawsuit, a valid counterclaim can often lead to a reasonable settlement of the deficiency claims.