July 2002
Repossession: What to Do If You Are Sued for a Deficiency

The word "repossession" strikes fear in some and connotes something terrible in others. You may have experienced the unpleasantness associated with a repossession, most often the repossession of a vehicle. Or, you may have a child or grandchild who has had this happen to him or her.

From time to time, I have learned about and even represented individuals who suffered the repossession of their vehicle. Sometimes it involved an improper repossession. Sometimes it involved a lawsuit or a threatened lawsuit for a deficiency following the repossession.

I recently, and successfully I might add, concluded a repossession case that may be of interest to you. I thought it would be informative and helpful to discuss the issues raised during and following a repossession of a vehicle. I will also provide some guidance on what to do if your vehicle is repossessed.

First, there are generally two kinds of lenders of loans to purchase vehicles: (1) traditional banks and credit unions who lend to those with reasonably good credit; and (2) high interest lenders who provide an alternative for those with poor or bad credit. The first kind often lend money to purchase new vehicles or used vehicles with a high price tag. The second kind often loan money to purchase low priced vehicles. Many of these lenders are associated with or owned by a used car dealer.

In repossessing a vehicle, a lender must conform to the law. In particular, the lender can only repossess the vehicle "if it proceeds without breach of the peace." See Section 70A‑9a‑609, Utah Code Ann.

There has been much litigation over what "breach of the peace" actually means. Lenders generally cannot invade your private property such as your garage. They also cannot physically remove you from your vehicle or physically touch you in order to accomplish the repossession. They can, however, take your vehicle while parked in your employer's parking lot or in your driveway or on a public street.

If the "repo person" appears at your door and requests the keys to your vehicle, you do not have to comply. If in doubt, you should consult an attorney to determine your rights.

After the repossession, the lender is required to send you notification of its intent to sell your vehicle. See § 70A‑9a‑611, Utah Code Ann. You have the right to attend the sale and bid for the vehicle along with other bidders. You also have the right to have your vehicle back before sale if you pay all that is owed to the lender.

After the vehicle's sale, which must be done in a reasonably commercial manner, the net proceeds must be applied toward the amount owed to the lender. Any balance that remains after such deduction is termed a "deficiency." The lender may then bring a lawsuit against you for that deficiency.

Before the lender can obtain a deficiency from you, it must have (1) sent notification to you about the vehicle's sale; (2) sold the vehicle in a commercially reasonable manner; and (3) correctly calculated the deficiency.

In the case I mentioned above, the lender failed on all three points. The lender could not show that any notification was sent. The lender was closely associated with the used car dealer (owned by the same individuals) and sold the vehicle back to the dealer for 20% of the vehicle's sale price, even though it was only 2 months from the original date of sale.

Most disturbing, however, was the fact that the vehicle was resold by the original dealer for the same price as initially paid. In effect, the dealer realized the full value of the vehicle after repossession. There was obviously no deficiency in this particular case, even though the lender and the car dealer were separate corporations.

The lender turned collection over to a collection agency which commenced a lawsuit to collect the alleged deficiency. After discovering the facts cited above, the collection agency agreed to dismiss the lawsuit and pay my client's attorney fees.

Although my client failed to pay his loan as agreed, his vehicle was repossessed and the lender/dealer fully recovered its money. Therefore, my client should not have been put through the necessity of hiring an attorney to defend against what turned out to be a bogus lawsuit. Fortunately for my client, the collection agency ended up paying the entire legal bill.

However, do not be fooled by this particular case. Most defendants are not so fortunate. These matters can be tricky and often complicated. You should immediately consult with an attorney if you are ever faced with a repossession or a deficiency lawsuit.

YOUR QUESTIONS: Do you have a particular question that you would like answered? To better serve the readers of the Utah Spirit, please direct your questions in writing to Michael A. Jensen, Elder Law Attorney, PO Box 571708, Salt Lake City, Utah 84157-1708, or by e-mail at: mike-spirit@utahattorney.com. From time to time, I will attempt to answer some of those questions.