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Repossessions: 7.5.3 State Law Conflicting with Liability Disclaimers

Liability disclaimer provisions may violate state law designed to protect consumers whose property is repossessed. A number of state motor vehicle financing acts and retail installment sales acts prohibit contract provisions waiving the consumer’s right of action against the creditor for various illegal actions during repossession.86

Repossessions: 4.2.2.1 Generally

Credit agreements may include language that the creditor can accelerate the obligation at will or when it deems itself insecure, or similar language. While the consumer is current on payments and is not otherwise in default, the creditor is authorized to accelerate the full obligation and then repossess the collateral. The UCC narrows a creditor’s ability to do so, and state law may further restrict such acceleration.

Repossessions: 4.5.1 Overview

The UCC does not prevent the creditor, upon the debtor’s default, from immediately accelerating the note and repossessing the collateral. A grace period (often provided for in a contract or required by a state consumer credit statute) allows a consumer to be slow in making payments before a default is declared. After default, a right to cure allows the consumer to prevent repossession by undoing the grounds for default without having to pay the full accelerated amount.

Repossessions: 4.6.3.1 Generally

If Article 9 applies to a yo-yo transaction, then a dealer that backs out of a transaction must comply with all aspects of Article 9 and related state repossession law.

Repossessions: 15.1 Introduction

A common law lien arises when one person, through labor, skills, or material, adds value to another person’s chattel by agreement.

Repossessions: 15.2 Common Law Liens

A common law lien arises when a person, with the property owner’s consent, bestows labor, skill, or materials on a chattel entrusted to them for that purpose, and thereby enhances its value.20 Once a common law lien arises, the lienholder may retain possession of the chattel until the owner pays the lienholder reasonable charges for the services performed.21 However, there is no common law right to sell the property to obtain payment.22 This

Repossessions: 15.3 Construction of Lien Statutes

Many lien statutes are intended as a codification of the common law principles described in the previous section. Some courts have required that statutes be construed consistently with the common law.29 But the majority of courts hold that lien statutes expand upon the common law, either by creating new situations in which a lien will result30 or by creating new remedies, such as lien sales.31

Repossessions: 15.4 Persons Who May Claim a Lien on Property

The lien statutes of a majority of the states allow any person who has enhanced the value of certain types of personal property through labor or skill to obtain a lien on that property.35 Other lien statutes limit liens to specific persons who have enhanced value, such as persons in certain businesses, bailees, artisans, mechanics, repairers, garagemen or garagekeepers, and towers or wreckers.36 Other statutes allow storage facilities of various sorts to obtain liens.

Repossessions: 15.5.1 Introduction

Three basic standards determine whether particular services and charges may give rise to a lien. First, the lien claimant must expend some labor and skill. Second, the lien claimant must enhance the value of the property, unless the statute specifically allows other charges to be the basis of a lien. Third, the lien must pertain to reasonable charges for the services, or to agreed-upon charges. These standards are discussed individually in the following subsections.

Repossessions: 15.5.2 Labor and Skill

The vast majority of lien statutes provide that a lien claimant must have invested labor or skill for which compensation is sought.52 Thus, a lien statute was inapplicable to a claim for unpaid rent on a trailer park lot because no services were involved.53 Similarly, automobile parts sold without a labor charge, or with only a minimal charge, do not give rise to a mechanic’s lien.54 Sale of an extended warranty did not support a mechanic’s l

Repossessions: 15.5.3 Enhancement of Value of Property

Most lien statutes limit liens to situations in which the lien claimant enhances the property’s value.61 Thus, negligence in the performance of services that would otherwise enhance the property’s value may be an affirmative defense against a claimed lien.62 Several courts have held that supplies required for ongoing maintenance of property, such as gasoline, oil, and antifreeze, do not constitute materials that enhance the property’s value.63

Repossessions: 15.5.4 Lien Is for Reasonable or Agreed-Upon Charges

Many state statutes require that a lien be for only the reasonable cost of services.69 Defects in workmanship may constitute a defense to a mechanic’s lien and reduce the amount due on the contract.70 Violation of UDAP regulations governing the underlying work may invalidate a lien.71 But one court has held that a lien is valid even though the property owner may have an unrelated claim against the lienholder that a court may set off against t

Repossessions: 15.11.1 No Right to Sell Property for Common Law Lien

Under the common law, a lien only creates the right to detain property until the owner makes payment for the services rendered. There is no common law right to sell the property if payment is not made.205 The right to sell lien property thus exists only when there is a statute that authorizes this remedy. Most states have enacted such provisions.

Repossessions: 15.11.2 Sale Requirements of State Lien Statutes

Many of the state lien statutes that allow the lienholder to sell the property also require that the property owner receive prior notice of the impending lien sale.206 Typically, these provisions require notice to the property owner within a specified time period, public notice through posting or a newspaper advertisement, or notice to some government agency such as a motor vehicle registry.

Repossessions: 15.11.3 Special Protections for Active Duty Servicemembers

The Servicemembers Civil Relief Act (formerly the Soldiers’ and Sailors’ Civil Relief Act) prohibits non-judicial enforcement of any lien on the property or effects of a servicemember while on active duty or for ninety days thereafter.211 This protection applies regardless of the type of lien or the type of property.212 If the lienholder seeks a court order to foreclose on the lien and the servicemember’s ability to comply with the obligation is materially affected by military service, the c

Repossessions: 15.12 Conduct of Sale

Many lien sale statutes require some type of judicial or other official involvement prior to or during the sale. This requirement serves to safeguard against clearly unreasonable sales or sales that ignore the rights of a third party to the lien property (for example, the rights of a party holding a purchase-money security interest).

Repossessions: 15.13.1 Does the Lien Sale Involve State Action?

For a lien sale to violate a consumer’s due process rights requires that the lien process involve sufficient state action to trigger Fourteenth Amendment protection. There must be state action or private conduct that “may fairly be treated as that of the State itself.”226 When the challenged activity is private, the United States Supreme Court requires a showing that the state has “significantly involved itself.”227

Repossessions: 15.13.2 Procedural Protections Required by Due Process

If sufficient state action is involved, the Due Process Clause will generally require that the property owner be given notice and an opportunity to be heard before being deprived of a property interest.239 Non-owners who have rights in the property may also be protected.240 The existence of the lien does not eliminate the owner’s property interest.241 The specific procedural protections that due process may require are discussed in more detai

Repossessions: 15.13.3 Towing Cases

Many successful constitutional challenges have been brought to towing liens. Courts are easily convinced that there is state action for Fourteenth Amendment purposes when automobile towing is carried out by state or municipal police or by a private party who tows at the request of the police.242 Police involvement in towing may also result in an unreasonable seizure in violation of the Fourth Amendment.243