Car repossesion and resale question..

[Dinger]

I have been told about a 60% rule when it comes to repossessions. If a customer pays 60% or more of their auto loan and then stops paying and the car gets repossessed that the lien holder may owe the customer money if they sell the car for more then the remaining balance.

I have read several things on this but can not find a direct answer and hoping to get lucky and have someone on here that knows give the answer.

Here is a quick summary of the story with not exact numbers.. We sold a truck (in house financing) the customer had her dad co-sign.. after paying the loan from $10,000 down to about $2,000 the dad called and said his daughter got into drugs and refuses to pay for the truck and for us to just come pick it up.

I guess my question is since they willingly gave up the truck to not have to pay for it anymore if we sell it will we owe them money? (They owed about 2000 and the truck could easily be sold for 5000)

[Big A]

I dunno, but that's plain stupid on his part. He could take it up to carmax for a quick flip, get at least the $2k most likely, and not have it hit his credit.

[BlackGT]

I know in the Storage Rental business (renting storage space), if the customer defaults, the locker/space goes to auction. At auction, if the contents sell for more than what is owed then the storage company has to give the extra funds to the customer who defaulted or to the state if customer cannot be found.

[Baron Von Crowder]

There is a form that they need to sign to releace the equity, IIRC.

[Mike]

Just add on charges for recovery of the vehicle and fees for having to resell it.

[Gear_Jammer]

In most situations, the creditor takes the money from the auction, pays themself first, pay any other parties that have a security interest in the collateral, and if there's money left over they return it to the customer. One thing you might want to think about is having the debtor transfer all of her/his right, title and interest in and to the collateral to you in exchange for forgiving/realeasing them from the $2K owed. That way you become the owner of the collateral and can do with it what you want and pocket all of the sales proceeds.

[idrivea4banger]

I'll give you tree fiddy.

[Slow Five-O]

I'll give you tree fiddy.

Tree sebny five!

[idrivea4banger]

Tree sebny five!

Fo fi six

[jluv]

One thing you might want to think about is having the debtor transfer all of her/his right, title and interest in and to the collateral to you in exchange for forgiving/realeasing them from the $2K owed. That way you become the owner of the collateral and can do with it what you want and pocket all of the sales proceeds.

Seems like all voluntary repossessions should work this way. Everyone comes out alright. You know, the "brotherly love" way of going about it.

[CJ]

I have been told about a 60% rule when it comes to repossessions. If a customer pays 60% or more of their auto loan and then stops paying and the car gets repossessed that the lien holder may owe the customer money if they sell the car for more then the remaining balance.

I have read several things on this but can not find a direct answer and hoping to get lucky and have someone on here that knows give the answer.

Here is a quick summary of the story with not exact numbers.. We sold a truck (in house financing) the customer had her dad co-sign.. after paying the loan from $10,000 down to about $2,000 the dad called and said his daughter got into drugs and refuses to pay for the truck and for us to just come pick it up.

I guess my question is since they willingly gave up the truck to not have to pay for it anymore if we sell it will we owe them money? (They owed about 2000 and the truck could easily be sold for 5000)

As an auto lender I've never heard of this 60% rule you're talking about. I do this just about every day so maybe I can give you some information. You cannot profit from the sale of a repossessed vehicle. If a vehicle is 20k, the customer pays you 4k, and you repossess it, pay your repo fees, recon fees, etc. and sell it for 18k, you owe the customer 2k.

So, if you sell it for 5k, and they owed 2k, the most you can keep is your repo fees + the amount they owed you. They have equity in that vehicle. Again, you can't profit financially from a repossession in Texas.

[CJ]

In most situations, the creditor takes the money from the auction, pays themself first, pay any other parties that have a security interest in the collateral, and if there's money left over they return it to the customer. One thing you might want to think about is having the debtor transfer all of her/his right, title and interest in and to the collateral to you in exchange for forgiving/realeasing them from the $2K owed. That way you become the owner of the collateral and can do with it what you want and pocket all of the sales proceeds.

What you said is correct, but the part about withholding funds is illegal and coercion. A lender would file an affidavit of repo, which gives the lien holder control over the collateral, they sell it and like you said the funds for back to the customer. But you can't withhold funds legally owed to the customer based on them granting you rights to take more of that money you owe them.

Assuming the customer signed a retail installment contract, the contract protects the customer just as much as the lender. And in that contract on the back in fine print (depending on whether it's a bankers contract, LAW553TX, etc.) you will find a clause referencing repossessions. The customer paid you all but 2k of what they owed you, you received that as income per the contract, the fact they defaulted does not entitle you to more money than what the contract originally stated.

Since it appears you're an independent dealer you should make sure you understand Texas state law for repossessions. Every 1-4 years you will get audited by the state. One of the things they focus on is your repo files. I use to be an auditor for several years, and I'm familiar with what they look for. Be very careful because they really like busting independent's asses on audits. If you can convince them you just "didn't know any better" you'll get off with a warning, and you'll have to pay back 100% of the money you owe. But, if you attempt to force to customer to release their interest on the title for the expressed purpose of you releasing funds to them, that's coercion. You can't talk yourself out of that. Your license will get pulled, you'll owe the customer all the money, and then you have to deal with a criminal case.

[Mike]

Thanks for the bad news, Cpt. Buzz kill

[CJ]

Thanks for the bad news, Cpt. Buzz kill

[Gear_Jammer]

What you said is correct, but the part about withholding funds is illegal and coercion. A lender would file an affidavit of repo, which gives the lien holder control over the collateral, they sell it and like you said the funds for back to the customer. But you can't withhold funds legally owed to the customer based on them granting you rights to take more of that money you owe them.

Assuming the customer signed a retail installment contract, the contract protects the customer just as much as the lender. And in that contract on the back in fine print (depending on whether it's a bankers contract, LAW553TX, etc.) you will find a clause referencing repossessions. The customer paid you all but 2k of what they owed you, you received that as income per the contract, the fact they defaulted does not entitle you to more money than what the contract originally stated.

Since it appears you're an independent dealer you should make sure you understand Texas state law for repossessions. Every 1-4 years you will get audited by the state. One of the things they focus on is your repo files. I use to be an auditor for several years, and I'm familiar with what they look for. Be very careful because they really like busting independent's asses on audits. If you can convince them you just "didn't know any better" you'll get off with a warning, and you'll have to pay back 100% of the money you owe. But, if you attempt to force to customer to release their interest on the title for the expressed purpose of you releasing funds to them, that's coercion. You can't talk yourself out of that. Your license will get pulled, you'll owe the customer all the money, and then you have to deal with a criminal case.

I think we have our wires crossed here. I'm a lawyer and most of my experience in this area is with my client being the 1st lien holder on a piece of equipment or having a possessory lien (a/k/a shop lien) in it. The debtor is free to transfer all right, title and interest in and to the collateral whenever and to whoever they want, unless it violates the terms and conditions of the contract between them. If the debtor wants to transfer his interest in the collateral in exchange for forgiveness of the debt, it is perfectly acceptable. Unless the lien holder misrepresents something (i.e. we're going to file criminal charges), there's no coersion and its not illegal. Having said all of that, one of the safest ways to get around all of that is to have an Rental Purchase Option contract whereby the monthly payments are considered rent and at the end of the term the debtor has the option to purchase it for something other than a nominal sum. I'm not sure whether you can do this in a situation like this, but with respect to possessory liens, we send the required Notice of Public Sale to all of the proper parties and post an ad in the proper newspaper/reporter and have the auction at my client's store. We can then bid it in for the amount we are owed and if no one goes higher than that, we become the owner. If someone bids more than what we're owed and wins it, we return the money, minus what we're owed and any fees, to the debtor.

The result is the same in that we get the surplus money from the sale, but just 2 different ways of skinning that cat.