Repossessions: 13.6.2.2 Application of the Tort of Conversion to Repossession
Examples of the application of the tort of conversion in the repossession context include:
Examples of the application of the tort of conversion in the repossession context include:
Even if the secured party eventually returns a wrongfully repossessed vehicle, or returns the unsecured personalty seized with a lawfully repossessed vehicle, the consumer still has a cause of action for conversion or trespass to chattels.431 According to the Restatement (Second) of Torts, a person commits trespass to chattels by intentionally dispossessing another of a chattel, depriving the other of its use for a substantial time, or impairing the chattel’s condition, quality, or value.432
Debtors often have negligence claims when repossession violations occur. For example, a negligence action is possible when collateral has been damaged after being taken. Once unsecured personalty has been taken in the course of a repossession, even unknowingly, the secured party is in the position of a constructive bailee, with concomitant duties.437 Breach of those duties amounts to negligence and any damages caused by that breach are recoverable.438
Creditors making a wrongful repossession may commit the common law tort of trespass.446 Entering the debtor’s home without permission is a trespass.447 Note, however, that some states recognize a limited privilege for repossessors to enter on private property, such as a driveway or unlocked garage.448 This conditional privilege allows entrance at a reasonable time, and in a reasonable manner, for example by peaceably knocking on the front doo
A creditor may defame the consumer while repossessing the collateral or trying to collect a deficiency.473 Falsely reporting to a credit reporting agency that a vehicle was repossessed because of the debtor’s default, or that the debtor owes a deficiency, may give rise to a defamation claim.
The third, and last, substantive FDCPA provision that explicitly applies to repossessors is taking or threatening to take any nonjudicial action to seize property if the property is exempt by law from such action.305 This provision might apply when the creditor does not have a valid security interest, or the debtor is not in default.
The FDCPA prohibits numerous other collection practices besides the repossession-related practices identified in the preceding subsections. These prohibitions apply generally to debt collectors. For example, the FDCPA prohibits any deceptive or unfair practice in connection with collection of a debt.
Whether the general prohibitions of the FDCPA apply to third parties involved in repossession depends on the interpretation of the FDCPA’s definition of “debt collector.” The statute’s primary definition of that term is:
Obduskey issues arise only if the defendant falls into the FDCPA’s limited-purpose definition, and to do so the defendant’s principal purpose must be the enforcement of security interests. This requirement looks to the company’s business model, and not to its specific transgressions in the case at hand. Criteria that courts consider to determine the principal purpose of a business are discussed in NCLC’s Fair Debt Collection treatise.321
The second key fact on which Obduskey turned was that the Court believed that the letters the firm sent the consumer were “required” in order to conduct a nonjudicial foreclosure under state law.325 The Obduskey Court emphasized that enforcement of a security interest “does not grant an actor blanket immunity” from the FDCPA.326 As an example, the Court noted that conducting a nonjudicial foreclosure is not a “license to engage in abusive debt collection practices like repe
If a court concludes that the FDCPA’s generally applicable prohibitions are applicable to a third-party repossessor, there are many that will be highly relevant. These include prohibitions against:
Many states have enacted state debt collection laws that have a broader scope than the FDCPA. These statutes may apply in full to repossession-related conduct whether or not the collection of money is involved.349 Many of these statutes also go beyond the FDCPA by applying to illegal acts by creditors collecting their own debts, rather than applying just to illegal acts by third-party collectors.350
The federal Truth in Lending Act (TILA)353 provides important consumer rights and remedies relevant to repossessions and foreclosures.
State consumer credit statutes may determine such important repossession issues as when a security interest is valid, when the creditor can accelerate a note, whether the debtor can cure the default, how the collateral can be seized,362 whether the creditor can seek a deficiency, and how the deficiency is calculated. When a state consumer credit law applies, it almost always provides debtor protections beyond those found in the UCC.
A number of states require that those in the business of repossessing property be licensed, or at least follow certain guidelines.385 These provisions are often found in the portion of the state code dealing with private detectives or collection agencies. Even if these statutes do not contain private remedies, claims may be brought as per se violations of state UDAP statutes.386
In a revolving repossession or “churning” scheme, a dealer sells a used vehicle or other collateral at retail, and then, after repossession, sells the same collateral a second time to another retail purchaser. In some cases, the dealer will sell the same property three, four, or even more times. This subsection discusses churning schemes involving used vehicles, but the same issues apply to churning schemes involving other collateral.
The rights of a purchaser at a sale after repossession are determined by UCC Article 2, which applies to the sale of goods,652 as supplemented by Article 9.
The sale must be to the person making the highest responsible offer or cash bid.495 Creditors may have a defense if they refuse to sell the collateral to a non-cash bidder whose financial reliability is uncertain, however. The creditor may also be justified in accepting a cash offer instead of an offer involving part cash and part trade-in, particularly when the trade-in has a speculative resale value.496
The sale location must allow access to the collateral on the part of the buying public or, in the case of a private sale, the target group of potential purchasers.
Advertising is an essential element of a commercially reasonable public sale.
Courts have sometimes held that public advertising is not necessary for a private sale.531 If the creditor uses a private sale, however, it must demonstrate diligence in obtaining buyers who will submit private bids for the property.532 Calling potential buyers to inform them of the availability of the collateral may be sufficient.533
The collateral offered for sale at auction must be available for reasonable inspection before the sale.535 An analogous section of UCC Article 2, concerning sellers’ rights to resell goods wrongfully rejected, makes explicit the requirement of availability for inspection prior to a public sale.536 If the collateral is not available for inspection prior to the sale, the only bidders may be wholesale purchasers who buy in large lots for low prices and take their chances.
While Article 9 does not require the creditor to obtain an appraisal of the property,541 the creditor’s failure to obtain an appraisal can be a factor in finding a sale, particularly a sale without competitive bidding, commercially unreasonable.542 A creditor cannot casually sell a car for junk without appraising its sale value or inspecting the car carefully.543 It was not commercially reasonable for a creditor to resell specialized equipment at a