Car Repossessed, Now What?

If you have a car loan, the lender can retake possession of your car after a default by "self-help" repossession. That means the lender does not need to file a lawsuit, but can just send the repossession company to pick up your car upon a default. Self-help repossession, while legal, is a drastic remedy and the law imposes very strict requirements on creditors who repossess your car. The stringent requirements are well justified, as today's news is replete with stories about how unscrupulous lenders can be in retaking possession of property.

So, what should you do if your car is repossessed? What are your rights in California? Here's some key issues for you to consider:

(1) Was there a "default" under your contract with your lender?

Though a lender can repossess your car without filing a lawsuit, there must be a "default" under the terms of your contract. The most common default is a failure to make a payment by the date it is due, though there can be other reasons for a default, such as a failure to carry appropriate insurance. You need a lawyer to review your contract and situation carefully, and ensure that the lender has retaken possession of the car only after there actually was a default. Sometimes a lender will agree to a new payment date, but then repossess the car before that new, agreed-upon date. In that case, there likely was no default. If there is no default under the terms of your contract, the lender cannot repossess your car. If it does, you may be able to sue the lender for damages.

(2) Who repossessed your car?

Only licensed repossession agencies can repossess your car. It is NOT a given that your car was repossessed by a licensed repossession agency. You can verify the company's licensing status in California by clicking here. If you did not get the name of the company during the repossession, call the local police department, since repossessors must file a report of repossession within 24 hours of taking the car. If the company who repossessed your car is not licensed to do so, the repossession may be criminal and it should be reported to law enforcement and the California Department of Consumer Affairs, Bureau of Security and Investigative Services. You also have a potential civil lawsuit for damages against the repossession agency and the lender.

(3) How was the car repossessed?

Not only must the repossession agency be licensed, it must have taken the car without a “breach of the peace”. Examples of a breach of the peace include the following conduct in connection with a repossession: using or threatening to use force, threatening arrest or other involvement by law enforcement, forcing a person to stop his or her car, breaking through a closed or locked barrier (e.g., a garage), or damaging the vehicle. In Los Angeles, there are many apartment buildings with gated and locked garages on the street level, and a secret code is required to enter the garage. If the repossessor somehow gains access to the garage without permission, it is a breach of the peace and an unlawful repossession. If your car is taken in breach of the peace, you can may be able to sue the repossession company and lender for damages, including the fair market value of the car at the time of the repossession.

(4) Did you receive proper notice of your rights following the repossession?

California law provides that the lender under your auto loan must inform you and any co-signers of the right to reinstate the contract by paying the past due payments and any repossession and storage costs, and the right to redeem the car by essentially paying the contract in full. If you cannot afford to reinstate or redeem the vehicle, it will be sold at auction and the creditor will apply the proceeds of the sale to your loan balance. You will owe the rest, which is called a “deficiency balance”.

I cannot stress how important it is to have a qualified attorney review the written notice you receive after your car has been repossessed. California law is very strict as to what must be contained in it. Essentially, the notice must tell you everything that needs to be done to reinstate the contract or redeem the car, without requiring any further acts on your part. If the post-repossession notice is defective and the lender sells your car, the lender stole your car, and you may be able to file a lawsuit for damages and other relief.