The Sale of Repossessed Vehicles

By Keith E. Whann

In offering repossessed vehicles for sale, confusion frequently arises where more than one state’s laws are involved. Generally speaking, every state in the country has passed some form of a Retail Installment Sales Act (RISA) and has adopted the Uniform Commercial Code (UCC). While deviations may occur from state to state, there are some general observations that can be made concerning these two types of statutes.

A state’s RISA statute will generally govern all repossession sales which result from a “consumer transaction,” i.e. one in which the purchaser has acquired the goods primarily for personal, family or household use. One important exception to this statute which is often included is that involving a transaction between financial institutions and their customers. In transactions exempt from RISA, the provisions of the UCC normally govern the repossession and subsequent sale of the vehicle. Given the fact that repossession sales could deal with vehicles falling under both categories, and the fact that many of the UCC provisions have been included in State RISA Statutes, this article will outline the notice and sale requirements generally adopted for both statutes.

Normally under RISA, a creditor must send two notices to the debtor. The first notice, a notice of default and right to cure, must be sent to the debtor within a specific number of business days (often five) after taking possession of the collateral. The notice usually must contain the following specific information: (1) the circumstances constituting the default; and (2) the itemized amount the debtor is required to pay to cure the default. This itemization must be accurate and include the following: (a) the amount of installments past due; (b) the amount of delinquency or deferred charges that are due; (c) the actual expenses of repossession up to a certain dollar amount; and (d) the deposit by cash or bond (up to the amount of a fixed number of installments) that will be required, if any.

The second notice usually required to be sent is a notice of sale. This notice must be sent at least a specific number of days (often ten) before the sale of the repossessed vehicle. Some states allow this notice to be combined with the notice of default and right to cure into one single notice. The notice of sale must contain a statement of: (1) the time and place of sale; (2) the minimum price for the collateral; and (3) a statement that the debtor will be liable for any deficiency.

The UCC is generally not as specific in outlining requirements for the notification and subsequent sale of repossessed vehicles. The UCC, as adopted, requires that a creditor must give a debtor reasonable notification of the time and place of sale, unless the purchaser has signed a statement after the default renouncing or modifying the required notification of sale. With respect to the timing of the notice, the official comments to the UCC on this topic state that the notice should provide sufficient time for the debtor to take the necessary steps to protect his interest.

With respect to the method of disposition of collateral, RISA may provide that a vehicle may sold at public sale only. By contrast, the UCC provides a variety of means for disposing of collateral where a “public sale” might not occur. The UCC definition of “public sale” also differs from some state RISA statutes. Both RISA and the UCC require that the method, manner, time, place and terms of a sale be commercially reasonable. In general, the courts have failed to recognize sales that were not really public, sales in which the creditor sold the collateral to itself or to an alter ego of itself at a suspiciously low price, sales in which the creditor failed to sell the collateral for a reasonable price or sales in which the creditor failed to choose a public sale when required.

A question is often raised with respect to the advertisement of repossessed vehicles prior to sale. To begin, the UCC does not require that a sale of a repossessed vehicle be publicly advertised in a specific fashion. In most situations, however, it would be possible for a debtor to demonstrate that public advertisement is a necessary component in order to establish that a seller has held a commercially reasonable sale. Lack of public advertising has been a factor in various cases whereby it was determined that sales were not commercially reasonable. In short, some form of advertising is required under the UCC.

The analysis of the advertising requirements is much simpler under most RISA statutes. Under RISA, a creditor is explicitly required to have a notice of sale listing the items to be sold, published in a newspaper of general circulation in the area (usually the county or city) where the sale is to be held. This advertisement must normally be published a specific number of days prior to the sale (often 10). Given the fact that RISA is generally considered to have more stringent requirements governing the sale of repossessed goods than the UCC, the running of an advertisement for a given repossession sale ten days prior to the sale will generally be sufficient to meet the notice requirements under both statutes.

The laws governing the repossession and subsequent sale of a motor vehicle can be quite complex. When a question arises, be sure to consult legal counsel to determine how the various statutes impact a particular transaction.