Presented by James E. Sorenson

WILLIAMS GAUTIERPost Office Box 4128 · Tallahassee, Florida 32315

(800) 377-3325www.williamsgautier.comjsorenson@wggdlaw.com

Repossessions: The CU Repo Owner's Guide

WARNING - No Legal Advice

The information in this presentation is intended for general informational purposes only and does not constitute legal advice. DO NOT act upon this information without first consulting directly with your attorney regarding the specific application of the laws and regulations referenced herein to your specific circumstances. No attorney-client relationship is formed as a result of this presentation.

RepossessionDefinition

Repossession is when a Creditor retakes, through “self-help” action, possession of personal property (collateral) securing a loan.

Governed by state law and can vary from state to state.

RepossessionSecurity Interests What is Required to Have an

Interest/Lien? A signed Security Agreement

identifying the collateral pledged as security and granting the Creditor a lien on the collateral.

A Security Agreement may be a separate document or included in a Credit Agreement or Note.

RepossessionTypes of Security Interests How Does a Creditor Perfect its Security

Interest in an Automobile, Boat, Personal Water Craft (Jet Ski), Vessel, ATV or Plane? Typically, the Credit Union will perfect its

security interest by either recording a lien on a Certificate of Title or filing a UCC-1 Financing Statement.

Automobile - A security interest in an automobile and RV are perfected by recording a lien on the face of the Certificate of Title.

RepossessionTypes of Security Interests (Cont.)

Boat - A security interest in a boat must be perfected by recording several liens in order to cover the hull, motor and trailer: Hull- A security interest in a hull is perfected by

recording a lien on the face of the Certificate of Title. Motor(s)- To perfect a security interest in a boat motor,

the Credit Union must file a UCC-1 Financing Statement. Trailer- To perfect a security interest in a trailer, the

Credit Union must file a UCC-1 Financing Statement unless the trailer has an empty weight of 2,000 lbs. or more. If the trailer weighs over 2,000 lbs., then the lien must be recorded on the Certificate of Title.

Personal Water Craft - A security interest in personal water craft is perfected by recording a lien on the face of the Certificate of Title.

RepossessionTypes of Security Interests (Cont.)

Documented Vessels: Vessels of 5 net tons or more must be documented. Net

tonnage does not refer to weight but rather to a vessel’s volume.

As a general rule, most vessels more than 25 feet in length will measure 5 net tons or more and must be documented.

To perfect a security interest in a documented vessel, the Credit Union needs to record/file a preferred mortgage with the United States Coast Guard.

A preferred mortgage is a mortgage which is given status as a maritime lien.

ATV - A security interest in an ATV or “off-highway” vehicle is perfected by recording a lien on the face of the Certificate of Title.

RepossessionTypes of Security Interests (Cont.)

Aircraft: A lien is perfected by recording a Security

Agreement or Lien Document with the FAA. When a Security Agreement or Lien

Document is recorded with the FAA, the Credit Union should receive a Conveyance Recordation Notice, AC Form 8050-41, as confirmation that its lien has been recorded and added to the aircraft record.

RepossessionRight to Repossess When Does the Right to Repossess Arise?

Default - The Credit Union’s Credit Agreement and Security Agreement list the grounds which constitute a default: Default is defined in the loan documents and may

include: failure to make payments, lapse in insurance or illegal use of collateral.

When a loan is placed in default, a Notice of Default may be sent but is not required to be sent by Florida Statute.

Acceleration – Declaring the total debt due and owing.

RepossessionRight to Repossess (Cont.) How to Exercise the Right to Repossess:

The member voluntarily surrenders the collateral. The Credit Union hires a repossession agent or agency

to exercise its right to self help. The right to self help is the right to PEACEFULLY

retake possession of collateral. Preventative Maintenance:

The Credit Union should have a contract with its repossession agent which provides protections for the Credit Union depending on the nature of the repossession.

Need more than a hold harmless agreement.

RepossessionAfter Repossession What Happens After Repossession?

A Notice of Intent to Sale letter must be sent to every person who signed the Promissory Note, Security Agreement, Loan Application or Guaranty Agreement and to junior lienholders and any other parties having an interest in the collateral.

Preventative Maintenance: Use the Statutory Form; Send to the last known address and any other

address you believe may be a valid address; Send via certified mail, return receipt; Keep copies of all Notice of Sale letters, as well as

return receipts. If an envelope is returned as refused or undeliverable, keep the envelope, unopened.

RepossessionAfter Repossession (Cont.)

Reasonably protect the collateral from deterioration, damage, vandalism and theft.

Ensure the collateral is insured either by the storage facility or the Credit Union to cover any loss or damage to the collateral.

Conduct an inventory or have an inventory done of all personal items in the collateral. If any personal property is recovered from the

collateral, the Notice of Sale should include the location of the personal property and the method by which it can be retrieved by the owner.

RepossessionAfter Repossession (Cont.)

Prepare a condition report of the collateral. The condition report should note all matters

which would lower or alter the book value of the collateral.

The Credit Union should keep copies of any condition reports and pictures of the collateral pending any litigation. Consider use of digital pictures to document condition of vehicle.

Obtain a repossession title from the Department of Highway Safety and Motor Vehicles.

RepossessionSelling Repossessed Collateral The collateral should be sold in a

commercially reasonable manner after the time period stated in the Notice of Sale letter. What is a commercially reasonable sale?

When the disposition is made in the usual manner in any recognized market and at the price current in any recognized market at the time of the disposition.

Preventative Maintenance: The collateral should be sold “as is” using

a bill of sale with an “as is” clause.

RepossessionSelling Repossessed Collateral (Cont.) The sale should be designed to bring the

highest price. Following the sale of the collateral, a Notice of

Deficiency/Surplus letter should be sent: If requested by the member/borrower/guarantor; If there is a surplus; Prior to taking collection action to collect the

deficiency balance. Preventative Maintenance:

Use a Notice which is in compliance with the statute.

Include any cross-collateralized loans in the notice.

RepossessionPreventative Maintenance: If the Credit Union continually accepts late

payments, the Credit Union may be held at some point to have waived its right to declare a default through its course of conduct. However, this can be remedied by sending a letter to the member stating that no late payments will be accepted in the future.

Failure to send either a Notice of Intent to Sale or a Notice of Deficiency/Surplus letter may bar the Credit Union from recovering a deficiency judgment and may subject the Credit Union to substantial statutory damages.

RepossessionPreventative Maintenance (Cont.) Failure to peaceably repossess collateral

either by the Credit Union or its agents may result in substantial damages and attorneys’ fees being paid by the Credit Union or its agents.

Repossessing collateral in error or when the loan is not in default may result in the Credit Union being sued for wrongful repossession.

RepossessionMiscellaneous Issue Service Members’ Civil Relief Act of 2003:

Collateral should not be repossessed from a member or the member’s spouse if member is active military.

Prudent course of action would be to file a replevin action.

Death of Member Following Repossession: If a member dies following or prior to a

repossession, the Credit Union should still follow the repossession procedures by sending the required letters to the deceased member’s last known address.

RepossessionMiscellaneous Issues (Cont.) Forfeiture Agreements:

The Credit Union should not enter into any forfeiture settlement agreement which eliminates the member’s right of redemption and provides for indemnification of the state agency.

If vehicle is involved in forfeiture, the Credit Union should seek lawyer’s advice.

RepossessionMiscellaneous Issues (Cont.) Bankruptcy:

If a repossession is effected prior to a member filing bankruptcy in Florida, then the Credit Union has no obligation to return the collateral. Please note that the Credit Union is still required to send a bankruptcy-adjusted Notice of Intent to Sale Letter.

If a member surrenders collateral pursuant to a bankruptcy, the Credit Union is still required to send a bankruptcy-adjusted Notice of Intent to Sale Letter.

RepossessionMiscellaneous Issues (Cont.) Lien for Towing and Storage of Collateral:

Pursuant to Florida Law, any person claiming storage fees, as a result of towing a vehicle at the request of law enforcement or an owner of private property, must provide notice within 7 business days by certified mail.

Failure to comply with the statute results in the towing company being unable to claim storage fees.

Repair/Mechanic Liens: Must pay for repairs authorized by auto owner. Garage can get storage fees if they notify lienholder

via certified mail within 15 business days from when storage charges begin to accrue.

RepossessionMiscellaneous Issues (Cont.) Cross-Collateralization Clauses:

Typically, most Credit Union loans are cross-collateralized; thus, any collateral pledged (excluding homestead) secures all the member’s lines of credit, and the collateral may be repossessed for any default.