Repossession Guidelines :: NYCUA - New York Credit Union Association (2024)

A credit union that makes loans on vehicles, manufactured homes, or boats requiring titling is inevitably going to be faced with repossession, regardless of the precautions taken. There are different options open to the credit union once repossession becomes inevitable.

Your first decision is whether to hire an attorney or collection agency to handle the repossession, or to do it yourself. Hiring an outside agency to handle your repossessions takes much of the burden off the credit union. A reputable agency will be knowledgeable of the laws affecting repossession and will take the necessary measures to protect the credit union's interest in the vehicle, manufactured home, or boat. If you do decide to go outside the credit union for help, make sure whoever handles your repossessions has established experience in repossession procedures.

If you decide to handle repossessions yourself, be aware of all the applicable state and federal laws governing your actions. Everything done regarding the repossession should be documented and filed in the event any action is taken against the credit union.
The following are guidelines to help you formulate a repossession policy for the credit union to follow.

What "vehicles" are titled
As required by New York State Title Law, the Department of Motor Vehicles issues a Certificate of Title for 1973 or newer model vehicles; 1995 or newer manufactured homes that are at least 8 feet wide or 40 feet long when transported or 320 square feet when erected on a site; and 1987 or newer model boats that are 14 feet in length or longer, when an Application for Registration and Title or Application for Title is filed with the necessary documents and fees.

Before you repossess a vehicle, manufactured Home or boat, make sure of the following:

1. Be sure the member is in default. Send the member default notices and give him/her a chance to cure the default before repossession proceedings are started.
2. Check your security interest. Verify that the credit union has proper documentation securing your interest in the vehicle, manufactured home, or boat. This can be done through a lien with the Department of Motor Vehicles or through the security agreement on your loan documents. The security agreement on the loan documents should include the make, model, and VIN.
3. To safely transport the vehicle, manufactured home, or boat, the credit union must purchase a set of transporter plates from the Department of Motor Vehicles.
4. The agency or attorney handling the repossession must have a properly executed agreement authorizing him/her to repossess the vehicle, manufactured home, or boat on the credit union's behalf.
5. If the vehicle, manufactured home, or boat is on private property and you are told to leave the property, you must. At this point, you can file a suit against the member.

Once the credit union takes possession of the vehicle, manufactured home or boat:

1. Immediately following the repossession, personally appear at the police agency in the locality where the repossession occurred and notify the police agency of the repossession.
2. Take an inventory on what items of personal property are in the vehicle, manufactured home, or boat. This should be done by two people and photographs should be taken. Inform the member of the personal property and arrange for him/her to collect it.
3. Record the odometer reading and take a picture of it, if applicable.
4. Within 24 hours, notify the Commissioner of Motor Vehicles of the repossession by completing formMV-327in duplicate, and delivering both copies either in person or by first class special delivery mail, along with the registration plates (if applicable), to the Department of Motor Vehicles serving the County in which the vehicle, manufactured home, or boat owner resides.
5. Within 42 hours, notify the owner of the vehicle, manufactured home, or boat of the repossession by providing anAffidavit of Repossession(Exhibit B) either personally or by registered or certified mail, sent to such owner at his/her last known address.
6. Within 72 hours after the repossession, mail to the member a notice ofright of redemption(Exhibit A). This notice informs the member of his/her right to redeem the vehicle, manufactured home, or boat and how to pay-off his/her debt. The right to redeem includes the total principal and interest outstanding along with collection costs and other loan charges.

Right to redeem
Generally, a car buyer has three options when financing the purchase of a vehicle, manufactured home, or boat: pay cash; borrow from a third-party lender (the credit union); or purchase the car on credit from the dealer by executing a motor vehicle retail instalment contract with the dealer. The third option, the motor vehicle retail instalment contract, is prohibited from containing an acceleration clause requiring the buyer to pay the entire amount due under the contract upon default. The dealer (seller) must permit the buyer to redeem the vehicle after its repossession by paying past due installments along with any repossession costs. If the credit union has purchased a retail installment contract from a dealer, it cannot demand payment in full when issuing the right to redeem.

Storing the vehicle, manufactured home or boat
The credit union must store the vehicle, manufactured home, or boat in a safe manner. If the vehicle, manufactured home, or boat is kept on credit union property, make sure you have the proper insurance in case of theft or damage.

If you store the vehicle, manufactured home, or boat off credit union property, apply the funds received for the vehicle, manufactured home, or boat to the cost of storage.

Be sure the credit union sells the vehicle, manufactured home or boat in a timely manner to minimize storage costs.

Selling the vehicle, manufactured home or boat
The credit union can now sell the vehicle, manufactured home, or boat either through public or private sale. The member must be given a notice of sale after repossession and a "reasonable time" before the earliest time of disposition. "Reasonable time" is not defined for consumer goods (i.e. a vehicle), but 10-15 days should be sufficient. This notice must be sent to all debtors and secondary obligors (i.e. guarantors/co-signors). The notice of sale must include:

1. Name of debtor and secured party.
2. Description of collateral.
3. Method of disposition (private or public sale).
4. Time and place of a public sale or the time after which any other disposition, such as private sale, is to be made.
5. Description of the liability for a deficiency of the person to whom notification is sent.
6. Telephone number from which the amount that must be paid to redeem the collateral is available.
7. Telephone number or mailing address from which additional information concerning the disposition and the obligation secured is available.

Regardless of the type of sale you choose, you should try to sell the vehicle, manufactured home, or boat in a commercially reasonable manner. You are under no obligation to advertise the sale, but you are required to get the highest sale price possible. Therefore, it is in the best interest of the credit union to notify as many interested individuals (including members) as possible about the pending sale.

Revised Article 9 of the Uniform Commercial Code provides a samplenotice of disposition(Exhibit C). This notice is for the sale of consumer goods and must be sent to the member and any secondary obligors. However, the credit union does not need to send this notice to any other secured parties or lien holders.

Once the sale has occurred, the proceeds of the disposition should be applied:

1. To expenses incurred in the repossession and sale.
2. To satisfy the obligation.
3. To satisfy subordinate obligations, if an authenticated demand is received prior to the distribution.

Private sale

A private sale has no set time or place.

Sealed bids

• At least two, preferably three, bids should be taken and sale should be to the highest bidder.
• Keep a record of all bids, their amounts, and the bidders.
• The credit union may close bidding after a reasonable period, regardless of the number of bids, and sell to the highest bidder.

Retail reseller
Another option is to place the vehicle, manufactured home, or boat on a retail reseller's lot for resale.

• Specify the date, time, and place on the sale notice of a repossessed vehicle, manufactured home, or boat when the credit union is reselling the vehicle, manufactured home, or boat at a public sale.
• If the sale date, time, and place are cancelled, a new notice must be sent out before a new, later sale can be held.
• The credit union may purchase the vehicle, manufactured home, or boat at a public sale.

Insider deals
Your credit union's approach to insider discounts on repossessed collateral, commonly referred to as "sweetheart sales," could expose your credit union to risk. According to the 2001 revision of the Uniform Commercial Code and the associated "Rapson Rule," (UCC Permanent Editorial Board member Donald J. Rapson) your credit union is responsible for insider discount costs or subject to litigation.

Prior to the Rapson Rule, sweetheart sales allowed insiders to purchase repossessed collateral at a price below the wholesale value, leaving the deficiency (the uncollected balance after the collateral's resale) to the original debtor. Insiders, as defined in UCC § 9-102 (62) and § 9-102 (63) include:

"Person related to," with respect to an individual, means:

• the spouse of the individual;
• a brother, brother-in-law, sister, or sister-in-law of the individual;
• an ancestor or lineal descendant of the individual or the individual's spouse; or
• any other relative, by blood or marriage, of the individual or the individual's spouse who shares the same home with the individual.

"Person related to," with respect to an organization, means:

1. a person directly or indirectly controlling, controlled by, or under common control with the organization;
2. an officer or director of, or a person performing similar functions with respect to, the organization;
3. an officer or director of, or a person performing similar functions with respect to, a person described in 1 above;
4. the spouse of an individual described in 1, 2, or 3 above; or
5. an individual who is related by blood or marriage to an individual described in 1, 2, 3, or 4 above and shares the same home with the individual.

In a typical scenario, a vehicle is repossessed by a credit union and an insider offers the Collections Department an amount lower than retail value. Due to the insider's influence at the credit union, the insider's offer is accepted, and the original debtor's deficiency liability increases. The Rapson Rule allows lenders to resell any repossessed collateral at any price to any insider. However, a sweetheart sale now has a cost because the Rapson Rule protects the original debtor from discount deficiencies. The original debtor's deficiency balance is based on the amount of proceeds that would have been realized in a disposition to an unrelated transferee UCC § 9-615 (f). Ultimately, the lender is now responsible for the cost of the insider discounts.

Your credit union should develop a written policy that prohibits the resale of repossessed collateral to insiders unless the sale is at full retail price. Implementing this policy will help limit your credit union's responsibility for insider discount costs and avoid unnecessary litigation.

Deficiency calculation notice
If there is a deficiency balance owed to the credit union after the credit union sells the collateral and applies the proceeds from the sale to the loan balance, the credit union must send the member a notice of the deficiency balance and a detailed explanation of how it was calculated.

This includes:

1. The outstanding debt before the disposition, calculated within 35 days before repossession.
2. The gross sale proceeds.
3. The obligation after deducting sale proceeds.
4. The sale and collection expenses added to the debt.
5. Any refunds or rebates credited against the debt and not included in the initial calculation of the debt before disposition.
6. The balance remaining after accounting for items 1 through 5.

Credit Union as seller and creditor
Under the Federal Trade Commission's (FTC's) "Holder-in-Due-Course" Rule, if the credit union is both the seller and the creditor, the member's consumer credit contract must contain specific language. For example, when the credit union grants a loan to a member to purchase the repossessed vehicle, manufactured home or boat, the following notice must appear in 12-point boldface type:

ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.

Once the vehicle, manufactured home or boat is sold:

• Inform the new owner the vehicle, manufactured home or boat is sold "as is."
• Supply the purchaser with a completed Form MV-950, Form MV-901 and the previous owner's title, if available.
• If there are any other open perfected liens on the vehicle, manufactured home or boat and a lien release is not obtained, you must advise the purchaser of the outstanding lien(s) on the vehicle, manufactured home or boat. These liens will be carried forward on the purchaser's title at the time of issuance.

Apply the funds to any cost involved in the repossession, and then apply the remainder of the funds to the debt. If there is any money left over, it belongs to the member. If there is not enough money to pay off the loan, the member is still responsible for the debt.

See More