Dude, Where’s My Car? A Primer on the Secured Transaction.
I recently came across an article that illustrated how little most people understand about repossessions. This can be a confusing aspect of the law. To make matters worse, repossessions are often wrapped up with the emotions that come with the ownership, or at least possession, of property. The summary of the apparent facts are these (names, locations and other identifiable facts have been omitted): A man purchases a car and quickly gets behind on his car payment. As tends to happen, the creditor begins calling and threatens a repossession. In an attempt to hide the car from the creditor, the man parks the car in a parking lot of a random business and leaves it there for weeks. The car sits, apparently abandoned, until a repo company shows up, informs the business owner that they are taking the car, and off the car goes. Later, the man shows up at the business and threatens the business owner with a suit for aiding the “theft” of the car. Fundamentally what the man in the above example seems to misunderstand is the basic relationship of the parties to a secured transaction. To cut through the legalese, generally when a creditor loans money for the purchase of a car, the title of the car goes to the creditor (ownership), but the car itself goes to the buyer (possession). The buyer has full use of the car and makes payments to the creditor until the loan is paid off. Once the loan is paid, the creditor will give the title to the car to the buyer (ownership and possession merge). Until that point when the buyer possesses both the car and the title (and depending upon the specific language in the financing agreement and contract [and the specific laws of different jurisdictions]), the creditor can take back the car and require the buyer to either pay the remaining balance, plus fees, to get the car back, -or- take back the car, sell the car at auction, and then come after the buyer for the difference between what the buyer owed, plus fees, and what the creditor was able to recover at auction. It seems like a pretty simple paradigm, right? I want you to give me money to buy a car, and in return you ask that you retain ownership of that car while I get the use of the car, until the loan is repaid.
But, what happens when the creditor, not the buyer, somehow breaches this arrangement? In Tennessee, where I am licensed to practice law, there are some interesting scenarios that tend to show that buyers aren’t the only ones that abuse this creditor/buyer relationship. In Tennessee, non-judicial repossessions after default are allowed, as would seem to be the case with the scenario discussed above. This means that creditors do not have to get permission from a court to take back the property[1]. The requirement for such a non-judicial repossession is that it “proceeds without breach of the peace.”[2] This “breach of peace” language is difficult to define in many circumstances as the Tennessee Code comments reveal that “this section does not define or explain the conduct that will constitute a breach of the peace, leaving that matter for continuing development by the courts.”[3] Importantly, the creditor who utilizes a non-judicial repossession and ‘’breaches the peace” risks liability for any tortious conduct that flows from that act, including the behavior of the third party they used to effectuate the repossession.
While the example above doesn’t seem to indicate that the creditor breached the peace, Tennessee case law illustrates that a creditor, through their third party tow company, that entered a garage and cut the lock off of a chain that was specifically intended to prevent removal of the vehicle, was a “breach of the peace”. The court noted that “[a]ny conduct that is incompatible with the tranquility and good order which governments are organized to maintain need not involved violence or threat of violence in order to be considered “breach of peace,” and thus preclude repossession.”[4]
The bottom line here is that even a defaulting buyer of a secured property, such as a car, has some rights and protections. Check your local laws and contact an attorney if you feel that you might be facing a repossession.
--By Derek A. Jordan, Esq., Barnes Law
Derek A. Jordan is an associate attorney with Barnes Law, licensed to practice law in Tennessee.
The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] This is not true of all jurisdictions, check your local laws.
[2] TCA § 47-9-609
[3] See: Id. note 3.
[4] See: Davenport v. Chrysler Credit Corp., 1991, 818 S.W.2d 23.