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Repossessions: 11.3.6.3 Selling Expenses

Reasonable expenses for selling the collateral can be deducted from the sale price,185 but make sure these costs are not deducted twice: once to reduce the sale price and again as a debit in computing the deficiency. Sale expenses include actual payments the secured party makes to an auctioneer for fees and expenses, and advertising expenses for advertisements that specifically mention the consumer’s property. When the advertising mentions several goods for sale, the consumer should only pay a reasonable share of the advertising costs.

Repossessions: 11.3.6.4.1 Introduction

The secured party’s attorney fees are often a major contributor to a large deficiency claim. While UCC § 9-615(a) allows the secured party to deduct attorney fees and legal expenses from the sale price, it specifies that the creditor can do so only to the extent provided for in the credit agreement and only to the extent that these deductions are not prohibited by state law.189

Repossessions: 11.2.1 Overview

Revised UCC § 9-616 creates a new requirement for a secured party in a consumer-goods transaction (one in which the person incurs the debt primarily for personal, family, or household use, and consumer goods secure the debt25). The secured party must provide a written explanation of the surplus or deficiency.26 The notice, though, need not be provided if the creditor does not seek a deficiency or provide a surplus.27

Repossessions: 11.2.3 Remedies for Failure to Comply

A secured party is liable for any loss caused by its failure to comply with UCC § 9-61649 and, in addition, is liable for supplemental statutory damages of $500 if the violation is part of a pattern or consistent with a practice of noncompliance.50 It appears that the pattern or practice of noncompliance need not be shown if there is a deficiency and the secured party fails to respond to a consumer’s request for an explanation.51

Repossessions: 11.3.1 Overview

Under the UCC, the creditor determines the deficiency or surplus. Few consumers ever challenge this calculation and federal or state law enforcement officials or regulators rarely monitor these calculations. As a result, creditors may become sloppy, apply suspect procedures, intentionally overstate deficiencies, or “forget” surpluses.

Repossessions: 11.3.2.1 The Remainder Due on the Debt Before Adjustments

The debtor is liable for the outstanding credit balance: the amount due on the note whose acceleration led to the repossession. Do not accept the creditor’s calculation of this amount at face value; the creditor has the burden to prove this amount. Nevertheless, one court allowed a creditor to meet its burden through a conclusory affidavit when the consumer did not provide any specific rebuttal.63

Repossessions: 11.3.2.3 Interest and Penalties After Acceleration

An important issue is whether state law or the credit agreement authorizes the creditor to charge interest on the accelerated balance due on the debt, as of the date of acceleration, until this amount is repaid. The contract may specify that the interest rate stated in the credit agreement will apply to any amount outstanding after acceleration, and state law will usually permit this provision.84 Absent such a provision, state law may specify the interest rate, if any, to be applied, both prejudgment and postjudgment.

Repossessions: 13.1 Introduction

This chapter details the primary affirmative remedies available to consumers in repossession cases. (, supra, analyzes defenses to deficiency judgment claims.) In many situations, consumers will raise the claims discussed in this chapter as counterclaims in deficiency actions, and they can also be cast as defenses if there is an advantage in doing so. However, it is also possible to bring these claims in affirmative actions against the creditor.

Repossessions: 13.2.1 Overview

When a secured party fails to comply with Article 9, UCC § 9-625 specifies extremely potent, but often overlooked, remedies that the consumer may invoke. These remedies include:

Repossessions: 13.2.2 Injunctive Relief

If the secured party is not proceeding in accordance with Article 9, section 9-625(a) authorizes the court to order or restrain collection, enforcement, or disposition on appropriate terms and conditions. Former UCC § 9-507(1) was narrower in that it only applied if the secured party was violating Part 5 of Article 9, and it only allowed the court to issue orders regarding disposition, not collection and enforcement.

Repossessions: 13.2.3.1 Availability of Actual Damages

Actual damages are available under UCC § 9-625(b) and (c)(1) for any violation of Article 9, not just violations of the rules about remedies for default that are contained in Part 6 of Article 9. The most common violations for which actual damages will be sought will still be those relating to the secured party’s duties under Part 6, particularly wrongful repossession8 or disposition of collateral.

Repossessions: 13.2.3.2 Components of Actual Damages; Attorney Fees

Under UCC § 9-625(b) and (c), the consumer may recover actual damages or statutory damages, whichever is greater. Actual damages are authorized in the amount of “any loss” caused by a violation of Article 9. The official comments state that actual damages should be measured as those reasonably calculated to put an eligible claimant in the position that it would have occupied had no violation occurred.13

Repossessions: 13.2.4.1 Generally

If the collateral is consumer goods, UCC § 9-625(c)(2) offers statutory damages of the finance charge plus ten percent of the principal for any violation of Part 6 of Article 9.

Repossessions: 11.3.2.4 Force-Placed Insurance Premiums Hidden in a Revised Payment Schedule

When a creditor claims a balance due far in excess of what the consumer expected, the explanation is often that the creditor has purchased expensive physical damage insurance covering the collateral and added the premium to the principal after the original credit terms were established. Credit agreements will specify that if the consumer’s physical damage insurance lapses, the creditor can purchase coverage and assess the premium to the consumer. This coverage is called force-placed insurance because the consumer does not voluntarily purchase it.

Repossessions: 11.3.3 Insurance Rebates

The typical secured transaction involves the consumer paying for various types of insurance. Credit life, credit accident and health, and credit unemployment insurance protect the consumer’s ability to repay the debt against risks of the debtor’s death, disability, or lost employment.90 Credit property insurance, automobile physical damage insurance, GAP insurance, and manufactured home policies protect the collateral against damage, theft, or fire. Service contracts and breakdown insurance insure against the need to repair the collateral.