Collateral recovery is a complex process that involves various steps, multiple stakeholders, and potential roadblocks. Following the COVID-19 pandemic, many creditors must carefully navigate additional twists and turns related to the successful recovery of their assets.
Given some of the latest challenges, we figured this was a topic that would be more enjoyable with your favorite cup of coffee. Recently, shareholder and the firm’s Chicago office managing attorney Casey Hicks
engaged in a casual yet informative conversation about key topics in the world of collateral recovery, including repossessions, replevins, forfeitures and seizures, and labor and storage liens. She was joined by guest speaker, fellow coffee-drinker, and attorney Drew Walgreen
, who represents clients in mortgage foreclosures and consumer and commercial collection litigation.
Here is a quick recap of a few topics discussed during this engaging session.
1. Pre-repossession considerations
Before starting the repossession process, it is essential to run through the following questions:
- Did the debtor miss a certain number of payments?
- Is the debtor in default?
- Did the debtor do something with the collateral that constitutes a “default” event, such as transferring it without the consent of the lien holder?
- Is the debtor’s financial situation deteriorating?
- Is the value of the collateral worth the cost of the repossession process?
- Is the debtor in the military or in an active bankruptcy proceeding?
You also need to verify which state’s laws apply to the collateral. This is generally determined by the terms of the contract.
If you decide to move forward with the repossession process, the next step would be planning and implementing the applicable state repossession letter and procedure into your business practice.
Repossession letters are governed by state statutes and must be very specific. The majority of states follow the Uniform Commercial Code
. If repossession letters are not properly formatted or do not include the correct information, you may not be able to pursue the deficiency balance. You could also face a counterclaim or direct suit and will be unable to proceed with collection. It’s always a good idea to have your legal counsel review the format of your repossession letters.
In Wisconsin, there are provisions that give the debtor the right to cure the default. The loan must be in default, which is defined as there being more than one full payment that is 10 days past due. If this is the case, you must provide written notice of the right to cure by regular mail. Some contracts specify that the notice has to be sent via certified mail, so it’s important to be mindful of the agreed upon terms. You must wait 15 days to repossess the collateral.
On the flip side, the state of Illinois typically does not require a written notice prior to repossession. However, similar to Wisconsin, the loan must be in default. Even one day late on a payment is defined as default.
2. Replevin vs. detinue: What is the difference?
A replevin is an order for repossession that is executed by the sheriff. You must know the location of the collateral and provide the address to the sheriff, in addition to the repossession company information. For instance, if a vehicle is located in a garage, then you need to supply the garage address to the sheriff. With execution on replevin orders, a bond is required. Typically, the bond is double the value of the collateral.
A detinue is the recovery of a specific piece of personal property that has been wrongfully detained, or the value of that property if damages cause the property to be undeliverable. Once possession is awarded to the creditor by the court, it can be enforced through civil contempt proceedings such as a rule to show cause, a body attachment, or a bench warrant.
3. Impounds, seizures, and forfeitures
Situations may arise in which law enforcement seizes or impounds your collateral, particularly cars, in the event the debtor was pulled over for a DUI, traffic violation, or other crime. Fortunately, creditors can regain possession of the vehicle within the seizure or forfeiture proceeding after the following steps are taken:
- Step 1: Submit a verified claim. This document gets sent to the local state attorney who is prosecuting the seizure or civil forfeiture case.
- Step 2: File an appearance and an answer. The creditor’s counsel should handle these filings, in addition to attending all of the court hearings and coordinating retrieval of the vehicle with the police department or seizing agency.
- Step 3: Reduce towing/storage fees. If the case is pending for multiple weeks or months (which they often do), the creditor’s counsel should work with the local police department or seizing agency to reduce the accumulating storage costs.
Missed episode one of Coffee with Casey? Watch it here
This blog is not a solicitation for business and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.