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Audience: Administrator, Compliance
The field of lending is pretty heavily regulated, as you probably already know. So it won't surprise you to know that there's a lot of regulation regarding the repossession of property, including cars. In this article, we go over how the repossession process works and how it's regulated.
How Repossession Works
A lender can repossess a car tied to a loan pretty much as soon as the account becomes delinquent, meaning as soon as a person misses even one payment in some states. The lender doesn't even need a court order to do so. However, the lender needs to make sure they don't "breach the peace" or use threats of force. The specific requirements vary depending on what state you're in, though. For example, there are a few states that require advanced notice to be given prior to repossessing a car, but most don't.
Once the decision has been made to repossess a car, the lender will hire a repossession agent, who will collect the car with a tow truck. The repossession agent does have rules they have to follow, though. They can't break into a locked garage or use physical force to remove a person from their car.
Repossession Hold Period
A lot of states, though not all of them, require you to hold a repossessed vehicle for a certain number of days before selling it. This allows the borrower to either pay off or come current on the loan before the vehicle is sold.
Once the car is in the lender's possession, they have it sanitized, which usually costs between $20 and $50 dollars; once the repossession hold period is up – if the borrower hasn't come current on their account – the car is then sold at public auction. The lender is required to inform the borrower when and where the auction will take place. From there, the money paid for the car in public auction goes toward the original, and anything left over becomes unsecured debt for the borrower.
It's important to note that repossession is not a way that lenders can automatically recover all the money they lost as a result of the a defaulted loan. Typically, repossessing a car will only help the lender regain approximately 30% of the loan value.
Common Uses & Questions
As much as we'd like to believe that every person who takes out an auto loan will repay their debt, in reality it doesn't always happen. That's why, when a person takes out an auto loan, the borrower will place the vehicle as collateral. When an auto loan is defaulted on, the lender can legally repossess the vehicle to recoup some of the loss by selling at auction if the borrower doesn't pay back their debt.
How long to I have to hold a repossessed vehicle before I can sell it? Usually, the repossession hold period is around 10 days, but it varies by state law, so make sure to consult the laws in you jurisdiction.
Who can I hire as a repossession agent? Most of the time, there are third party tow truck companies you can hire. A lot of the time there are even companies that specialize in the repossession of vehicles.
If you would like to know more about compliance in lending, take a look at our Compliance articles.
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