Repossessions in Alabama: What Are They?
In the state of Alabama, repossession is an action taken by a lender, such as a bank or finance company, to recover collateralized property from the borrower. When property such as a car, boat, or other asset is used as collateral for a loan, the lender has the right to reclaim the property if the borrower defaults on the loan. This process is known as repossession.
Repossession is a common occurrence when borrowers are unable to keep up with their loan payments. In Alabama, a lender can repossess a vehicle if the borrower falls behind on their monthly payments. Repossession can also occur if the borrower fails to adhere to the terms of the loan , such as not maintaining adequate insurance on the collateralized asset.
As per Alabama law, secured transactions allow lenders to offer credit based on collateralized assets. When a borrower takes out a loan for an asset such as a car, the lender typically requires the borrower to provide collateral for the loan. In the event the borrower defaults, the lender has the right to repossess the collateralized asset.
A repossession can involve various types of collateralized property, including vehicles, furniture, jewelry, and even real estate for unsecured loans. When collateral is involved in a repossession in Alabama, it often involves a car or other vehicle, as the repossession of real property involves a more complex legal process.
Alabama Repossession – Legal Grounds
Alabama’s legal framework for repossessions is governed by a combination of federal law and state law. Because most Alabama repossessions are voluntary, enough to meet Article 9 of the Uniform Commercial Code ("UCC"), Alabama consumers who receive a notice that a consumer completes may be worried about whether their lender is following the necessary laws. Alabama law also outlines what debt collectors must do following repossessions via the Alabama Commercial Credit Transactions Act, codified in Sections 5-19-20 to -25 of the Alabama Code.
Because most repossessions involve motor vehicles (such as cars, trucks, motorcycles, and boats), Alabama’s Magnuson-Moss Warranty Act offers some consumers protection following repossession. For most consumers in Alabama, public policy would prohibit a lender from repossessing a car if the car is not in fact owned by the consumer. This is because Section 7(a) of 15 U.S.C. § 2304 of the Magnuson-Moss Warranty Act does not allow a lender to pass on products purchased by consumers, as done in a repossession, to other consumers absent consent. If a repossession involves a vehicle, Alabama courts would generally agree that it is protected under the laws of the Magnuson-Moss Warranty Act.
If a consumer is in a financial position to return a defaulted loan, Alabama law now allows for a right to cure. In this scenario, the consumer needs to get the loan back in good standing with the lender. The consumer must pay any amounts past due as well as any legal expenses. The right to cure is different than the right to reinstate. The difference is that repair charges, additional fees, and other charges not permitted in the right to cure statute may be included in a right to reinstate with the consent of the consumer. If a consumer misses payments, and the creditor sends a notice of right to cure allowing for a reinstatement of the contract, the consumer is liable for: (1) one or more payments that were past due or unpaid; (2) reasonable expenses incurred by the creditor for enforcing its rights under the contract; and (3) interest and other costs for payments that were past due or unpaid.
Consumer Rights in the Midst of Repossession
Assessing the Rights of the Consumer in connection with Alabama Repossession
Because a Alabama lienholder can self-help repoing at any time, it is very important to understand the rights of the consumer in connection with repossession. To start, there are two important statutory protections that limit the right of a lender who repossesses an vehicles in Alabama – the Uniform Commercial Code and the Alabama Consumer Credit Act. Both of these laws require that a lender give the borrower pre-repo notice and follow certain procedures after repo to satisfy the law.
In Alabama, the lessor/creditor has a right to take possession of the vehicle by self-help, without notice or the heads up that other states afford. Although the state statute does not require notice, many lenders do provide notice before repossession. This is usually done pursuant to either State or Federal Law. Under the Truth In Lending Act (Federal Law), creditors must provide borrowers with written notice of their rights three times a year (March 1, June 1, September 1). The Consumer Credit Protection Act (State Law) provides that creditors usually provide borrowers with written notice of their rights upon entering into the loan. In addition to those federal and state requirements, it is customary for creditors to send borrowers monthly statements, which also generally contain the borrower’s rights likely in "fine print." While creditors can repossess your car without sending you a notice first, it is customary (and highly suggested) that creditors abide by their own voluntarily written policy of sending the borrower a notice allowing the borrower a limited amount of time to bring their account current. It is always best to pay your account(s) before the creditor repos the vehicle. However, if you have fallen behind on your payments, and the creditor has repossessed your vehicle, you can exercise your rights under Section 7-9A-609 to cure your default and regain possession of your property – within specified parameters. If a creditor pursues legal action against a borrower following repossession of the vehicle, the creditor must obtain "replevin" from the court before taking your property.
If a borrower is unable to pay the full amount owed to the creditor, the borrower may be able to convince the court to enter a "Tendered Payment Order." Under a Tendered Payment Order, the borrower pays only those funds necessary to obtain the vehicle back. This usually only benefits the borrower when the account is more than one month past due (if only a month, it is usually better to pay your account and get the car back). If the borrower has been repossessed several months, and simply cannot afford to pay the full amount, a Tendered Payment Order is usually a good option. The Tendered Payment Order only gives the borrower one additional month to cure the default. It isn’t a lot of time, but it may help if the borrower is about to obtain new employment or there are some funds available (usually due bonus or tax return) that can be used to catch the account current. Once the Tendered Payment Order expires, the borrower must pay the full amount and then replevin the vehicle back. The replevin process is usually complex, and often requires the entry of a bond for the value of the vehicle. The bond is usually the market value of the property, which the court will determine. The application for a Tendered Payment Order can be submitted to the court within a short time after repossession (usually 15-30 days). The window of time will vary based on the facts, and with each District Judge. The process to obtain a Tendered Payment Order is usually quick and may only take a couple of weeks. If the borrower’s amendment permits the entry of a Tendered Payment Order, it is suggested that the borrower consult with an attorney before filing the application to make sure that the process is correct.
Alabama Repossession Process and Guidelines
The repossession process in Alabama typically involves the following steps: default, notice and/or demand, repossession, and disposition of the property.
1. The Obligor Defaults
Generally speaking, an obligor is in default when he/she/it fails to make a payment on the loan by the due date (i.e. delinquent). The consequences of default are set out in the agreement between the parties. The language of most retail installment contracts includes the right of the lender to repossess the collateral if the obligor defaults. However, in certain situations an obligor may be in default even though he is current on the payments. For example, the debtor may not properly maintain insurance, may fail to pay property taxes, or might change the address on the loan contract without notifying the lender of the change.
2. The Lender Makes Demand
Upon default, the lender may make demand upon the borrower to pay the balance owed or to surrender the collateral. Typically, the lender would send a letter of demand via certified mail or make an oral demand. In some cases, the lender may contract with a repossession company to call the borrower or visit his/her/its home or place of business.
3. The Lender Repossesses the Collateral
If the demand to pay or surrender the collateral is unsuccessful, the lender may have the collateral repossessed. Furthermore, a lender may repossess a vehicle in the absence of a demand upon finding it in its actual possession or in a public place where it is unattended. In Alabama, the law requires the lender to use reasonable care when repossessing the collateral. The lender may not breach the peace to take possession of the collateral. In the event the collateral is a vehicle, a breach of the peace would include entering onto private property, entering an enclosure (e.g. building, fenced-in area), or entering a garage without consent.
4. The Lender Disposes of the Collateral
When a lender has repossessed collateral, its next move may be to hold the collateral for a commercial reason or to sell it. A lender generally has a duty to dispose of repossessed collateral in a commercially reasonable manner. Alabama law also requires the lender to give notice to the borrower of the sale or disposition of the collateral no later than 10 days prior to sale.
Credit Score Impact after a Repossession
It likely comes as no surprise that if you own something and that thing is taken from you or "repossessed," a record of that repossession will be made. In America, we have laws that provide for that repossession, including Alabama law, but also the Federal Consumer Reinvestment Act (for consumer transactions) that governs creditors and repossessions using those types of loans. To be clear, most property can be repossessed if not paid for, but not real property like your house. The laws governing those transactions can be complex — too complex to fully state here. But, in short, each creditor can repossess specific items that you purchase on credit.
For example, Alabama law gives "secured creditors" (like Honda Financial) the ability to repossess property they financed for you, like a car or ATV. If you fall behind in payments (which, you will likely encounter if you purchased more than you can afford), Honda has the right to give you notice and repossess the car. This can be a simple and light legal process, or it can be complicated, costly, and even painful . Regardless of how the repossession occurs, it will likely end up in the hands of a collection agency that reports it to credit bureaus, which can then result in damage to your credit report and credit rating.
This is important because credit is hard to get in many cases. You may be able to get a loan, but often you’ll pay much more in interest, possibly pay higher insurance premiums, and even have a hard time renting a property. In many cases, bad credit can drastically reduce your options in life.
Fortunately, there are ways to mitigate the impact of repossession without paying off the debt in full. For example, if you think the repossession was superfluous or not necessary, a consumer could consider suing the creditor to seek damages that can include the amount of the loss. How much depends on the state law that applies to the transaction, but it can include some economic damages that might otherwise not be considered.
A repossession occurs in Alabama regardless of what the creditor or consumer thinks. Usually it’s not an issue, but sometimes it is. If you think that a repossession is not necessary or has occurred in error, consider reviewing your options with an attorney.
Challenging an Unlawful Repossession
Consumers who believe that their property was wrongfully repossessed in Alabama may have a number of options available to them. The first step is usually to determine whether the repossession was indeed wrongful. The law is clear that under Alabama law, a secured party may only repossess the property once a debtor has defaulted. These rights are limited, and if there has been no default, then the secured party cannot repossess the property.
If a debtor believes that he or she was wrongfully repossessed, then he or she should first contact the secured party to see if a resolution is available. Perhaps a payment error occurred that led to confusion about whether a debtor had defaulted. If so, the documents may be incorrectly interpreted. For that reason, a debtor should contact the secured party to discuss the problem.
Next, a debtor may have options under state or federal law. For example, a debtor may be able to file a lawsuit based on the telephone harassment laws if the matter relates to excessive calls. A debtor may also be able to turn to the Fair Credit Reporting Act or Fair Debt Collection Practices Act if related collections, credit reporting or credit card issues led to the wrongful repossession and triggered a series of events.
Additionally, if a consumer believes that the wrongful repossession was caused by the secured party’s deceptive, misleading or fraudulent actions, then the consumer may be able to file a lawsuit and recover damages under Alabama’s Deceptive Trade Practices Act, the Alabama Consumer Fraud Act or the Alabama Uniform Commercial Code.
Preventing Repossession: Strategies
Consumers in Alabama facing financial difficulties cannot afford to ignore the possibility of having their valuable personal property repossessed. It is critically important that those in jeopardy of losing their property understand the potential for having their repossessable assets taken from them, along with the associated consequences of that action. Luckily, there are strategies available to consumers facing repossession that may assist them in safeguarding their property from loss.
One immediate measure that can keep repossession at bay involves filing for bankruptcy protection. Bankruptcy protection prevents creditors from repossessing certain property, including some vehicles, home furniture and appliances, or any air conditioner or heater that is deemed a luxury item. This type of protection is not available for other types of property, such as televisions and computer equipment. Bankruptcy can present a good way for consumers to keep their valuable property from repossession until their situation improves.
Another way for consumers to prevent repossession in Alabama involves negotiating with the lender. Many lenders understand that attempting to repossess property can be labor intensive, costly and time consuming . It is essential in these instances for the borrower to explain their situation honestly to their lender and to clearly communicate the steps that they are taking to improve their situation. If the borrower can successfully communicate that they are trying to rectify the situation, then the loan may be restructured or a new payment plan set up. Even if this is not an option, the lender may be amenable to working with the borrower to arrange a later date for them to pay what they owe. Because repossession is expensive, time consuming and disruptive to their business, many lenders may be willing to work with borrowers rather than go through the repossession process.
If the lender is refusing to work out a deal and repossession is unavoidable, the borrower should comply with the repossession agreement in order to obtain a smooth transition for the return of the repossessable property. Once repossession occurs, the borrower is responsible for transportation of the property, or they may be required to pay storage fees and towing costs, in addition to any deficiency balance on the property that is being repossessed. Unless the borrower can work out a payback plan to keep from having to pay these costs, they may find themselves with a debt that they have no means to pay.