In mid-November of 2021, I had the pleasure of speaking about the repossession process at Cherokee Media Group’s Used Car Week
in a presentation titled The 3 R’s: Recovery, Replevins, & Reputation
. What might you ask was the “hottest” topic of conversation at the convention? It was undoubtedly the soaring prices of used cars. Nearly every repossession agent, auto financer, credit union, and banker that I spoke to commented on the surge of used car prices and the surpluses in repossessed vehicle sales.
Due to a supply chain shortage and increased demand, used car sales are on fire right now. Prices have surged to new levels that the industry has not seen in years.
A majority of my legal practice is devoted to drafting repossession letters. In past years, I could honestly say I had never drafted a surplus letter after the sale of a repossessed vehicle. In 2021, it has become the new norm. Most creditors rarely experience surpluses after the sale of a vehicle. This can lead to many questions about how and when the surplus funds should be returned to the consumer. It also can raise questions about whether those surplus funds can be applied to offset any other outstanding accounts.
Following the sale of a repossessed vehicle, the proceeds of the sale or fair market value of the vehicle (depending on the jurisdiction) must be applied to the outstanding balance due in accordance with applicable state law and the Uniform Commercial Code
. If the consumer is entitled to a surplus after the sale, the lender must send an explanation letter either when the lender pays the surplus or within 14 days after receipt of a request by the consumer. The surplus funds may be submitted to the consumer via check or directly deposited into the consumer’s deposit account. Your explanation letter should give the consumer information about how you are returning those surplus funds or if you are invoking your right to offset another delinquent account.
Generally, most credit unions and banks will have the right to offset other delinquent accounts with the surplus funds received from the sale if proper language is included in the account agreement and loan documents. A notable exception is credit card accounts. State law may also limit the right to offset, so it is important to check with your attorney before applying surplus funds to another delinquent account.
Our collateral recovery team
at Weltman is educated on the unique laws that vary from state to state. If you have questions, please connect with Stefanie
at any time.
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