TIADA 2017 ANNUAL CONFERENCE& EXPO
Repossession and Bankruptcy:The Nitty-GrittyBy Michael W. Dunagan, AttorneyJameson & Dunagan, P.C.Hyatt Hill Country ResortSan Antonio, TXJuly 23-25, 2017
Why Follow Repo Rules?
Class Action SuitsAggresive Plaintiffs’ AttorneysRepossession Triggers AngerOCCC AuditsMVD AuditsCriminal Penalties and Civil DamagesCFPB Scrutiny
Actual damages, orStatutory damages - amount of finance charge plus 10 per cent of principal$500 on certain violationsPersonal injury damages when breach of the peace occursPunitive damagesFines for violating bankruptcy stay
The Legal Basis of Repossession
What is Self-Help Repossession?Repossession is Not TheftIs Prior Notice Required?The Danger of Waiving Strict ComplianceThe Effect of Acceleration
When Can I Repo?
Valid security interestOCCC Dealer Finance LicenseDefaultTypes of defaultWhen to send cure letter prior to repoAcceleration
Do I Have to Give Advance Notice?
Under Texas law, no advance notice is required if debtor is in default.However, some courts have held that a creditor may have waived strict compliance by accepting late and/or partial payments in the past.
What is Waiver?
A creditor’s actions (accepting late/partial payments) may alter terms of contract.Suddenly repossessing and accelerating without notice may be seen as unfair.Use of “cure” letter before repo is better practice.
What is Cure Letter?
Cure letter gives debtor notice that late/partial payments won’t be accepted in future.Debtor given opportunity to bring account current.CFPB uses fairness standard in applying UDAAP.
Breach of Peace and Other Limits
Types of breach of peacePhysical forceUniformed officerWhen is repo complete?Servicemembers Civil Relief ActBankruptcy stay
Sanchez vs. Mbank caseDue diligence in selectionUse hold harmless agreementUse arbitration agreementInsurance coverage
Secure propertyReturn personal propertyChoose method of dispositionCommercial reasonablenessRight to redeemCharging repo fee
Signed Waiver (Voluntary Acceptance of Collateral in Satisfaction)Strict Foreclosure (Non-Voluntary Acceptance of Collateral)Private Sale
Obtaining Signed Waiver
When to useProper formMust be totally voluntaryLegal significanceno notices necessaryrelease from claims and suitsacknowledge receipt of personal propertydeficiency is waived
Debtor’s Signed Waiver Upon Voluntary Return
Debtor’s Signed Waiver Upon Voluntary ReturnAgreement to Accept Collateral in Full Satisfaction of Indebtedness___________________, 20_____To: (Name of Secured Party)RE:(Description of vehicle), and Motor Vehicle Installment Contractdated ________________________, ______I (we) have voluntarily returned the above-mentioned vehicle, which is collateral under the above-referenced contract, to you. I (we) consent to your acceptance of the collateral in full satisfaction of the remaining indebtedness, and I (we) relinquish all rights to the vehicle. I (we) waive my (our) right to notification of disposition of collateral and my (our) right to require disposition of the vehicle under Section 9-620(e) of the Uniform Commercial Code. I (we) release you from any claim or liability, in tort or breach of contract, violation of the Texas Consumer Protection Act/Deceptive Trade Practices Act, the Texas Finance Code, or any federal law or regulation. You agree to release me (us) from any liability with regard to our obligations under the Contract, and agree not to pursue any deficiency against me (us).I (we) have removed all personal property from the vehicle.____________________________________(Debtor)____________________________________(Co-Debtor or Guarantor)Accepted:____________________________________(Secured Party)(FromTexas Automobile Repossession: A Lien Holder’s Legal Guide, copyright 2015 by Michael W. Dunagan)
Strict Foreclosure(Acceptance of Collateral in Satisfaction)
Easiest method of disposing of reposNo payment of surplus and no post-sale accountingProper notice form60 per cent rule20- day holding period – ownership revertsBalance forgiven – no credit reporting of deficiency
Difference between public and private saleNotice letterRetail or wholesaleSale at wholesale auto auctionAny surplus must be paid –Any deficiency can be soughtPost-repossession accounting
Post-Repossession AccountingAfter Private Sale
Post repossession accounting formWhen it must be sent?To whom must it be sent?What info must it contain?Penalties for non-compliance
Using the Courts
Sequestration: the processdue process requirementslimitationsjustice courtscostsSeeking criminal prosecution
Personal propertyAccessionsValid mechanics lien trumps security interestUse of tracking devices
Repossessing From Mechanic
Mechanic lien is a possessory lienRelease of vehicle or private use waives mechanic lienInvoluntary repossession from mechanic’s premises does not waive lien
Bankruptcy Issues for BHPH Dealers
Avoid selling to bankruptcy candidatesBankruptcy trumps repo rightsThe automatic stayPre-petition repoFixin’ to fileWhat to do when the bankruptcy notice arrives
Avoid Being Victim of “BR Planning”
Current and prior bankrupts are bad risksRequire listing of all debts on credit appsAsk magic questions on credit apps:“Are you planning on filing bankruptcy?”“Have you consulted with an attorney about filing bankruptcy?”
The Automatic Stay
Creditors can take no action outside of bankruptcy courtSevere penalties for repossession after bankruptcy filed“Lifting” the automatic stay is goal of creditor
Pre-Filing Repossession: Can I Keep It?
Courts consider bankruptcy stay as controlling repossessed vehicle not yet legally disposed ofCourts will order return of vehiclesException: If 20 days have passed after strict foreclosure notice, bankruptcy stay has no affectLesson: Send notice promptly and dispose of vehicle as soon as legally permissible
Fixin’ To File
Ifb/rpetition not filed, there is no automatic stay – OK to repoDebtor may file immediately after repo (see Pre-Filing Repo above)
What Do I Do When the Bankruptcy Notice Arrives?
Any notice is legal notice (don’t ignore)Remember that bankruptcy stay trumps right to repoFlag account -- Make no contact with debtorConsider retaining counsel to get stay lifted if value of vehicle justifies expense