TIADA 2017 ANNUAL CONFERENCE EXPO Repossession and Bankruptcy

TIADA 2017 ANNUAL CONFERENCE & EXPO Repossession and Bankruptcy: The Nitty-Gritty By Michael W. Dunagan, Attorney Jameson & Dunagan, P. C. Hyatt Hill Country Resort San Antonio, TX July 23 -25, 2017

Why Follow Repo Rules? • • Class Action Suits Aggresive Plaintiffs’ Attorneys Repossession Triggers Anger OCCC Audits MVD Audits Criminal Penalties and Civil Damages CFPB Scrutiny

Damages • Actual damages, or • Statutory damages - amount of finance charge plus 10 per cent of principal • $500 on certain violations • Personal injury damages when breach of the peace occurs • Punitive damages • Fines for violating bankruptcy stay

The Legal Basis of Repossession • • • What is Self-Help Repossession? Repossession is Not Theft Is Prior Notice Required? The Danger of Waiving Strict Compliance The Effect of Acceleration

When Can I Repo? • • • Valid security interest OCCC Dealer Finance License Default Types of default When to send cure letter prior to repo Acceleration

Do I Have to Give Advance Notice? • Under Texas law, no advance notice is required if debtor is in default. • However, some courts have held that a creditor may have waived strict compliance by accepting late and/or partial payments in the past.

What is Waiver? • A creditor’s actions (accepting late/partial payments) may alter terms of contract. • Suddenly repossessing and accelerating without notice may be seen as unfair. • Use of “cure” letter before repo is better practice.

What is Cure Letter? • Cure letter gives debtor notice that late/partial payments won’t be accepted in future. • Debtor given opportunity to bring account current. • CFPB uses fairness standard in applying UDAAP.

Breach of Peace and Other Limits • • • Types of breach of peace Physical force Uniformed officer When is repo complete? Servicemembers Civil Relief Act Bankruptcy stay

Creditor Liability • • • Sanchez vs. Mbank case Due diligence in selection Use hold harmless agreement Use arbitration agreement Insurance coverage

Post-Repo Procedures • • • Secure property Return personal property Choose method of disposition Commercial reasonableness Right to redeem Charging repo fee

Disposition Methods • Signed Waiver (Voluntary Acceptance of Collateral in Satisfaction) • Strict Foreclosure (Non-Voluntary Acceptance of Collateral) • Private Sale

Obtaining Signed Waiver • • When to use Proper form Must be totally voluntary Legal significance – no notices necessary – release from claims and suits – acknowledge receipt of personal property – deficiency is waived

Debtor’s Signed Waiver Upon Voluntary Return Agreement to Accept Collateral in Full Satisfaction of Indebtedness __________, 20_____ To: (Name of Secured Party) RE: (Description of vehicle), and Motor Vehicle Installment Contract dated ____________, ______ I (we) have voluntarily returned the above-mentioned vehicle, which is collateral under the above-referenced contract, to you. I (we) consent to your acceptance of the collateral in full satisfaction of the remaining indebtedness, and I (we) relinquish all rights to the vehicle. I (we) waive my (our) right to notification of disposition of collateral and my (our) right to require disposition of the vehicle under Section 9 -620(e) of the Uniform Commercial Code. I (we) release you from any claim or liability, in tort or breach of contract, violation of the Texas Consumer Protection Act/Deceptive Trade Practices Act, the Texas Finance Code, or any federal law or regulation. You agree to release me (us) from any liability with regard to our obligations under the Contract, and agree not to pursue any deficiency against me (us). I (we) have removed all personal property from the vehicle. __________________ (Debtor) __________________ (Co-Debtor or Guarantor) Accepted: __________________ (Secured Party) (From Texas Automobile Repossession: A Lien Holder’s Legal Guide, copyright 2015 by Michael W. Dunagan)

Strict Foreclosure (Acceptance of Collateral in Satisfaction) • Easiest method of disposing of repos • No payment of surplus and no post-sale accounting • Proper notice form • 60 per cent rule • 20 - day holding period – ownership reverts • Balance forgiven – no credit reporting of deficiency

Private Sale • • Difference between public and private sale Notice letter Retail or wholesale Sale at wholesale auto auction Any surplus must be paid – Any deficiency can be sought Post-repossession accounting

Post-Repossession Accounting After Private Sale • Post repossession accounting form – When it must be sent? – To whom must it be sent? – What info must it contain? • Penalties for non-compliance

Using the Courts • Sequestration: the process – due process requirements – limitations – justice courts – costs • Seeking criminal prosecution

Related Issues • Personal property • Accessions • Valid mechanics lien trumps security interest • Use of tracking devices

Repossessing From Mechanic • Mechanic lien is a possessory lien • Release of vehicle or private use waives mechanic lien • Involuntary repossession from mechanic’s premises does not waive lien

Bankruptcy Issues for BHPH Dealers • • • Avoid selling to bankruptcy candidates Bankruptcy trumps repo rights The automatic stay Pre-petition repo Fixin’ to file What to do when the bankruptcy notice arrives

Avoid Being Victim of “BR Planning” • Current and prior bankrupts are bad risks • Require listing of all debts on credit apps • Ask magic questions on credit apps: – “Are you planning on filing bankruptcy? ” – “Have you consulted with an attorney about filing bankruptcy? ”

The Automatic Stay • Creditors can take no action outside of bankruptcy court • Severe penalties for repossession after bankruptcy filed • “Lifting” the automatic stay is goal of creditor

Pre-Filing Repossession: Can I Keep It? • Courts consider bankruptcy stay as controlling repossessed vehicle not yet legally disposed of • Courts will order return of vehicles • Exception: If 20 days have passed after strict foreclosure notice, bankruptcy stay has no affect • Lesson: Send notice promptly and dispose of vehicle as soon as legally permissible

Fixin’ To File • If b/r petition not filed, there is no automatic stay – OK to repo • Debtor may file immediately after repo (see Pre-Filing Repo above)

What Do I Do When the Bankruptcy Notice Arrives? • Any notice is legal notice (don’t ignore) • Remember that bankruptcy stay trumps right to repo • Flag account -- Make no contact with debtor • Consider retaining counsel to get stay lifted if value of vehicle justifies expense