Car repossession regulations affect lenders as much as borrowers in many ways. It ensures fairness and balances the power shared by both parties. While it allows creditors to recover debt with relative ease, it protects the car owner’s rights even during repossession.
However, repossession comes with various risks that can have long-term negative implications for both parties. As much as the lender has the right to repossess a vehicle of a defaulting debtor, failing to comply with the law may be severe. Likewise, car owners risk incurring more debt while losing their car.
The rules ensure that all parties play fair during and after this process. Thus, knowing the implications of auto repossession can help you make an informed decision before securing a loan or when repossession seems imminent. In this article, you will discover how car repossession regulations affect car owners and lenders.
Repossession Impact on Car Owners
Financial Impact
1. Direct Impact on Income Generation
Losing access to your vehicle can strike a major blow to your primary sources of income. Many small entrepreneurs conduct daily business from their cars, including packaging goods, offering services, and delivering items. Meanwhile, some working individuals rely on their cars to perform side gigs such as food deliveries and cab services. For many, losing their vehicle directly affects their ability to earn a living.
2. Deficiency Balance Risk
Failing to repay loans may lead to losing more than your vehicle. In some cases, borrowers may lose their cars and also be legally required to pay the lender a significant balance. This happens when the lender sells the repossessed car for less than the loaned amount. If the difference between sale revenue and loan (deficiency balance) surpasses a $2000 threshold, the borrower must pay.
Nevertheless, if you don’t want to lose your vehicle you should hire a certified and experienced local lawyer who can handle these issues on your behalf with expertise. For example if you live in Massachusetts, you should hire one of the best repossession lawyers who are expert in Massachusetts car repossession law.
3. Repossession Costs
Repossession can be a long and capital-intensive process, especially if it goes on for a long time. The lender typically employs a repo agency, leases a storage unit, and pays auction fees. The law permits them to transfer these costs to the borrower, meaning you may be incurring more debt during repossession.
Credit Score Impact
One of the areas where car owners feel the impact of repossession the most is on their credit scores. It can cause major damage or a significant reduction in credit scores. Loaning companies report loan defaulters and repossession cases to the credit bureau. This information can be on your credit report for up to 7 years, limiting your access to many opportunities.
Repossession Impact on Lenders
Financial Impact
1. Profit on Investment
Every loan is an investment. The aim is to recover the money with interest. If the borrower fulfils their financial obligations when due, the lender maintains profitability. Besides prompt loan repayment, lenders may recover most of their money from selling repossessed vehicles to minimize risk.
2. Car Resale and Deficiency Balance Risk
After repossession, the lender auctions the vehicle to recover the money owed. However, the amount they can recover depends on the current market value of used cars. If the selling price is less than the money owed, the lender may be entitled to a deficiency balance payment. However, if the deficiency balance is less than $2000, the lender gets nothing.
Legal Impact
Although the laws on repossession in the US are similar, there are certain variations in different states across the nation. Thus, lenders and borrowers must be sure of the state’s legislation on repossession for guidance. If you reside in Massachusetts, here is what the state law requires of lenders.
1. Repossession without Breaching the Peace
Creditors have the right to repossess vehicles. However, they must do this without “breaching the peace”. This means they will in no manner violate the borrower’s civic rights during the process. According to Massachusetts law, breaching the peace may involve any of these:
- Threats, abuse, or violence against the borrower
- Disturbing the peace or harassing the debtor
- Publicly shaming the debtor in their neighborhood or on their property
- Forcefully seizing possession of the car from the owner
2. Serving a Formal Notice
Repossession law in Massachusetts requires creditors to formally notify the vehicle owner beforehand. Unlike other states, lenders must issue a notice starting from 10 days after the loan repayment due date. There will also be a “grace period” of 21 days in which the loan defaulter can repay without further consequences.
3. Zero Trespassing
In Massachusetts, repossession agents can only remove a loan defaulter’s car outside the confines of their property. This includes their driveway and garage.
Attempting to repossess a vehicle on the owner’s property is considered trespassing. To repossess a vehicle, lenders must remove it from public places such as parking lots or the street.
4. Noncompliance Repercussions
If the lender wrongfully repossesses a vehicle in Massachusetts, the court may order them to compensate the owner. In addition, the lender may be required to cover the legal representation costs of the borrower during the case as punishment.
Besides the compensation, the borrower may sue for more damages. For example, wrongfully repossessing a vehicle might cause small business owners to struggle to meet customer demands. The borrower could file a lawsuit against the lender, asking for substantial compensation for lost deals or financial opportunities.
Bottomline
No one likes car repossessions. It causes as much inconvenience for the lender as the car owner.
When car owners lose their vehicle, they also damage their credit score and risk covering repossession costs and deficiency balance. Meanwhile, the lender risks noncompliance and unrealised profits from the loan deal.
Whether you are a lender or car owner, adhering to the state and federal legislation on repossession is not optional. It is the key to freedom from financial or legal complications. Each state has a unique variation and interpretation of the law. So, contact a Massachusetts car repossession lawyer today to ensure full compliance.
