Property Repo FAQs - Know Your Rights

Secured loans are an extension of credit in which a specific item of property is pledged as a guarantee of payment. In the event that you do default, the property, commonly called collateral, can be seized by the lender. What constitutes defaulting? Defaulting is broadly defined, but in most cases in means missing as little as one payment.

Can lenders repossess my property even if I haven’t missed a payment?

Yes. Here are some common scenarios when a loan can be declared in default even when you’re current on your payments:

- the property that guaranteed the loan is damaged, destroyed, stolen, or anything else that may cause the property’s value to depreciate.
- you sold the property
- your financial status has changed for the worse---the lender considers you insolvent or considers the prospect of full payment is unlikely
- you stopped paying insurance on the property. This is most common for automobiles, where many loans require that you have collision and comprehensive insurance on the car.
- you refuse to let the creditor investigate the collateral per the contract

Does a lender have to notify me ahead of time that they intend to repossess my property?

This depends on the terms of the original contract and what state you live in. Unless specifically stated otherwise in the contract, lenders must notify you that the full payment is due before they can repossess your property.

What does “right to cure” mean?

A “right to cure” is the privilege to correct any missed payments. Normally you get a few weeks to pay back what is owed plus any late fees. Fortunately for consumers, most but not all states have “right to cure” laws.

Are there any states that prohibit creditors from repossessing property without a court order?

Yes, Wisconsin and Louisiana.

Can I voluntarily return the collateral to the creditor?

Yes. Most of the time creditors will accept this, but they are not obligated to do so, and if the value of the property has depreciated considerably, they probably won’t. Your best bet is to call and ask the lender if they’ll cancel the debt in exchange for the collateral. If they agree, get the settlement terms in writing.

What happens if they won’t cancel the entire debt in exchange for the property?

Assuming you can’t afford to pay the debt back, the creditor will seize the collateral and sell it. The difference between what is owed on the loan and what the collateral was sold for you owe the creditor. This difference is called a “deficiency balance.”

What debt relief options do I have to resolve the deficiency balance?

Debt settlement, bankruptcy, and credit counseling. With debt settlement, also known as debt negotiation or debt reduction, the creditor accepts a lump sum payment as low as 40-60% of the balance for full satisfaction of the deficiency balance. In credit counseling, the full debt is paid off on a payment plan. In bankruptcy, the debt is never satisfied, but your obligation to pay the deficiency balance is nullified. Read this article for more information about debt relief for repossessions.

How are cars repossessed?

In most states the creditor must send you a “right to cure” notice before an auto repo can occur. Once this is done, the creditor must repossess the vehicle without “breaching the peace.” That is, the repossession must be done without force. A “breach of peace” is a very vague term, so what it consitutes is difficult to define. That being said, here’s a general framework of what constitutes valid or invalid auto repos:

Legal actions for repossessors in most states:

lying or tricking you
-hotwiring a car
-using a duplicate key to take a vehicle
-taking an automobile from a garage that’s closed but unlocked
-taking the car from an open garage or carport

Illegal actions for repossessors in most states:

-breaking into a garage with a duplicate key to take the vehicle
-taking the automobile after you or a family member objected at the time of repossession
-using abusive language or violence

So if I object to the repo they can’t repossess the property?

This is true, but it only qualifies at the time of the objection. If the repo man seized the property later in the evening when you’re sleeping, the repossession is valid even though you objected earlier in the day. As long as it does not constitute a “breach a peace” the repo is valid. The creditor can also get a court order to take the car.

Will they repossess the furniture I bought on the store card if I miss payments?

They have the right to repossess the furniture, but in most cases they do not, particularly if the furniture is old. They may encourage you to return the property to the store, but you should only do so in full settlement of the outstanding debt, leaving you with a zero balance.

I secured a Citifinancial loan with some stereo equipment and they are threatening to repossess it. Do I have to let the repo man into my home to seize it?

No, not unless a sheriff arrives at your home with a court order requiring you to do so.

I took out a Beneficial loan secured by my gas grill and some other lawn furniture all of which is in my backyard. Can the repo man take it?

Yes, as long as he doesn’t use force to take the property. For example, he can’t bulldoze down your fence to get in your backyard, but he can open an unlocked gate. Also, as with car repossessions, the repo man cannot “breach the peace”, so as long as you object at the time of repossesson he must stop.

Can I get the property back after repossession?

Some states allow this so long as you reinstate the contract by paying the missed payments, late fees, and repo costs, and then resuming payments according to the original terms. Even if your state does allow reinstatement, however, it can be limited if any of the following applies to you:

-the contract was reinstated in the past
-you lied on your credit application
-the property’s value has dramatically depreciated as a result of your not taking care of it
-you hid the property to avoid repossession

Most states you get the property back by redeeming it---paying back the full amount owed (not just the missed payments) plus repossession costs anytime before the property is sold or auctioned.

What incentive do I have to not hide the property to avoid repossession?

Your credit is marginally better with voluntary repo because it shows that you took the initiative in the situation assuming the creditor distinctly reports it as such to the credit bureaus. With an involuntary repo, you’ll also most like have to pay the repossession costs. Another disadvantage with avoiding a repossession is it can cost you the opportunity to get the property back through reinstatement.

Am I entitled to the personal belongings inside of the car at the time of repossession?

As long as they weren’t physically attached to the vehicle. In other words, you’re entitled to any clothes, books, or the other stuff you left in the car, but the stereo that you installed is now the property of the lender. You are entitled to uninstall the stereo system prior to repossession, however.

What happens if I don’t reinstate or redeem the property after repossession?

The property will be sold or auctioned. Prior to that occurring the lender must notify you in writing of the date, time and location of the sale. The notice must also inform you of whether you’ll be liable for any deficiency balance. You are also reserved the right to attend the sale and bid. Once the property is sold, you will be responsible for the difference between the sale price and what you owe the lender.

Am I better off letting my car get repossessed or selling it myself?

Selling it yourself. Typically the sale price of vehicles is very low at repossessed car auctions relative to selling it on the free market. Although law requires the car to be sold in a “commercially reasonable” manner, most property sold at repossession auctions is sold for less than the fair market value.

Can I be sued for the deficiency balance that I owe after the repo?

Yes.