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Can My Car Be Repossessed Without A Valid Lien On It?

If you operate on a tight budget or simply prefer to find automobiles on a deal, buying a used car through a private sale (purchasing a vehicle off Craigslist, AutoTrader, or from someone other than a dealer) might be the car-buying route for you.  While some avoid these scenarios for lack of mechanical knowledge or lack of dealer guarantees, others will gladly take on the risk of a private sale due to the bargains they can find. If this is the type of auto deal for you, be sure to consider the scenario in which a recently purchased vehicle may face potential repossession issues if any delinquent loans exist on the car.

What Is A Car Repossession?

Unless you have dealt with a car loan gone wrong in the past, you may not understand what a repossession is. If an car or truck is purchased by way of a loan, the lender will require hold a security interest or lien on the vehicle.  In the event that the borrower does not abide by the loan repayment terms, the lender may seek to take back possession of the vehicle. The process of taking the vehicle back is known as repossession.

What happens during a Repossession?

After the agreed to terms of a loan are not met (The most common broken term of a loan is failing to make timely payments), the lender will usually seek to be made whole through some form of legal remedy. The lender may have options through late fees and penalties (and preemptively getting the loan back on track), demanding the balance of the loan be paid in full (this is known as payment acceleration), filing a lawsuit against the borrower for the full contract amount, or by repossessing the vehicle.

If vehicle repossession is the route a lender chooses to go, the lender will attempt to obtain the vehicle by a legally permissible method. In California, a lender must hire a licensed repossession agency to repossess a vehicle.  A lender will usually hire a repossession agency and order the repossession of a vehicle without notifying the borrower in order to avoid the risk of the borrower trying to hide the vehicle from repossession.

Once the repossession order is received, the repossession agency will send one of its repossession agents to search and locate the vehicle.  Once the vehicle is located, the repossession agency will attempt to repossess the vehicle.

After the vehicle is repossessed, the lender is required to hold the vehicle for fifteen (15) days after sending a notice of intent to dispose the vehicle to the borrower.  This notice gives the borrower fifteen (15) days, and in some cases, up to twenty-five (25) days to reinstate the contract or redeem the vehicle.

If vehicle is not redeemed or the contract is not reinstated within the time allowed, the lender/finance company will sell the vehicle at a public or private auction.  Once a sale of the repossessed asset is confirmed as the final solution, the lender will go through a sale and look to collect the loan differential through a lawsuit or collections.

Your Rights After A Vehicle Repossession:

Although you may be in the wrong for not paying your car payment on time, that does not mean the repossessing party can just walk all over you.  In California, there are consumer protection that limit how a car or truck repossession can take place.

These rights include, but are not limited to:

  • The right to object to a repossession moments before it takes place
  • The right of disputing whether the repossession is valid; and
  • The right against a breach of peace during an attempted repossession

Repossession by Lender of A Previous Owner:

Now what if you purchased your vehicle from someone else that has a delinquent loan on it. For example, a car purchased through a private party via a Craigslist ad. If you were to buy this vehicle and the third-party lender wants to repossess the car for an unpaid loan, can that lender show up and take the vehicle from you?

The answer to this question is very similar to any legal suit - it depends.

The facts and evidence surrounding the situation will vary the outcome greatly.  Here are some general scenarios to consider:

Mistake by Previous Owner's Lender/Finance Company:

If the previous owner of the car paid the loan off, it may be a situation where the previous owner's lender did not properly update their bookkeeping. In this situation, the previous owner's finance company most likely does not have the legal right to repossess the vehicle, and therefore it would be an unlawful repossession.  Since the auto loan was paid off, the finance company no longer has a security interest or lien on the vehicle.  In fact, the finance company has no right to any additional money because the previous owner had already fully paid back the loan.  Unfortunately. this sort of mistaken but illegal repossession commonly occurs.   

Car Title Washing:

Something a Craigslist purchaser should really be worried about is the threat of purchasing a vehicle with a "washed title".  A "washed title" occurs when somehow the DMV issues a new title for a vehicle that does not include the finance company's lien information on the title even though the lender did not release the lien.  For example, if Lender XYZ is still owed money on a loan for a vehicle, Lender XYZ will be listed on the vehicle's title as a lien-holder.  Title washing occurs when a new title for the vehicle is issued by the DMV (maybe from a different state) and it does not list Lender XYZ's as a lien-holder.  To a new purchaser, it will appear like the seller owns the car free and clear and is able to transfer title to the new buyer without having to payoff Lender XYZ. 

A new buyer is in a very difficult position if he or she purchases a vehicle with a "washed title".  In this situation, both the lender and the new buyer have been defrauded by the seller.  Both the new buyer and the lender will make arguments that each should be entitled to ownership of the vehicle.  Who wins this argument will depend on whether the new buyer is a Bonafide Purchaser for Value without Notice.

Bonafide Purchaser for Value without Notice:

This is a common law concept that may or may not be familiar to you as a reader. While the statutory or case law elements of a bonafide purchaser may vary state-to-state, the general idea of a bonafide purchaser is someone who made a good faith purchase for value without knowledge of any bad faith elements that may exist from a particular seller.

An example of this can be seen during the private sale of an automobile. A seller might list a car for sale at its book value, but the car actually has an outstanding loan on it that the seller has defaulted on. If, for some reason, the car title shows no record of an outstanding lien on the automobile, then the purchaser (new buyer) would have no reason to suspect the threat of a third-party repossession claim.

If you fall into this category when purchasing a vehicle that is now being repossessed, what rights do you have to protect yourself from simply having to lose your newly purchased vehicle?

Bonafide Purchaser Rights:

If the buyer is a bonafide purchaser for value, the buyer would most likely have a legitimate wrongful repossession claim and would be able to go forward with legal action to keep the vehicle. While it is not guaranteed and most definitely dependent on the evidence at hand, the buyer would have a much better chance at keeping the vehicle if his or her “hands are clean” in the transaction process. If he or she paid fair market value for the vehicle and had no reason to believe the seller was acting in bad faith, the buyer can present this case in a court of law.

How to Protect Yourself:

If you are caught within a repossession conflict, or fear that you will be getting your vehicle repossessed, then here are a few things you should know.

The first and foremost, if you are confronted by the repossession agent, you do not need to fear physical violence. Any and all threats made against you, your family, your friends, or even your property, is an illegal breach of the peace by the repossession agent, and can be grounds for a case.

A repossession agent may not enter a secured area of your property or break locks and fences in an attempt to repossess your vehicle illegally. If you tell the repossession agent that you do not allow them to go through your property, they are not allowed to do so.

The repossession agent may not use the police force to strong-arm you into allowing the agent to gain entry onto your property. The police force, and any other civil servant from the government, must remain unbiased and impartial to either party. Make sure to know your rights when it comes to the law, even if the police attempt to tell you otherwise during the repossession negotiations.

Make sure to document each and every interaction with the repossession agent(s). This includes any letters, messages, and physical interactions you may have. It may also help to keep any pictures and videos of interactions, and before and after images of your property, in case a breaking and entering case occurs.

If you purchased a vehicle from a private party, and your new vehicle is repossessed by a lender or finance company claiming a right to the vehicle, contact an attorney right away.

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