Car repossesion and resale question..

[CJ]

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.

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

I think I must have misunderstood what you were saying. What you said is true, they can release their interest in collateral for whatever reason they want willing to, of course. What I thought you were describing was coercion, forcing the customer to release their interest so they can receive an amount back to them, at least that's how I understood it. I guess what you're offering the customer is not to report the repossession on their credit in exchange for letting you profit from the sale. If what you're saying is the debt is forgiven per an agreement set by you and the customer separate from the original retail contract (as in it's not reported to a bureau, or whatever) that's legal because it's a new contract of course. But, if what you're saying is to release from from owing you the money - that doesn't really make any sense to me because they don't owe you any more money legally, but you owe them money legally. The retail installment contract protects the customer in the fact that they agree to a set amount of debt, they owe no more than that amount. So, legally, in this situation as it's been described, if the vehicle sells for 5, the customer owes 2k to fulfill their debt obligation per the contract, you owe the customer 3k, you keep your 2k legally owed to you. You can't withhold that money from the customer in any way, and certainly you can't use coercion to force a customer into a deal with nullifies the original one by withholding that money. There is no reason at all for a customer to sign the back of a contract, in Texas if you are a lienholder you will file an affidavit of repo, and you assume ownership, the customer is irrelevant - but that does not mean you can take all of the money from the sale.

The kinds of loans you seem to be referencing are promissary notes which is common on the equipment you described. However, on auto retail installment contracts there are specific provisions to prevent a lienholder from profiting from the sale of collateral. It's also state law covered in the UCC guidelines.

Sale of the Vehicle

If the debtor can't redeem the vehicle, the lender may keep the car or dispose of it in a public or private sale. Under the UCC, the sale of the car must be deemed commercially reasonable. A commercially reasonable sale includes selling the vehicle at fair market value in a private sale, or at the wholesale value when sold at an auction. Although uncommon, should the lender sell the vehicle for a higher price than the debtor agreed to pay in the contract, the lender must give the surplus funds to the debtor.

But, like you said if the customer releases their interest in the title willingly then it's all irrelevant. I just don't see why they would unless you're giving them a reason to do so.