The Sale of Repossessed Vehicles
Keith E. Whann
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.
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
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.
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.
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.
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.
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.
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.
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.