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Repo Man

All about auto repossessions and how to avoid one

by James M. Flammang
DriveSmart - Owning - autoMedia.com

He's not the bogeyman, creeping into the nightmares of children. For grown-ups who've fallen behind on their car payments, though, the repo man could be even scarier. Miss a payment or two, and he might turn up one night with his tow truck, eager to snatch your car.

Hard economic times translate to more car-owners who fall behind, giving more work to the repo man. Delinquency rates are near all-time highs, according to Tom Kontos, executive vice-president of customer strategies and analytics at ADESA (a major wholesale auction chain). That keeps repossessions high, he explained at the National Remarketing Conference in November 2009. "Repo volumes have continued to be pretty strong," Kontos added in a later interview, for both new and used vehicles.

Kontos told Auto Remarketing magazine that "high volumes of vehicle loans were given when credit qualifications were more lenient." He believes 2009 may have been the peak for repos, approaching the 2 million mark. Default and delinquency rates are growing, so "there will still be an elevated volume in 2010 of repos."

Tom Webb, chief economist for Manheim Consulting, has noted that repos rose 12 percent in 2008, to 1.67 million, following a 9 percent hike in 2007. Auto-loan delinquencies eased a bit late in 2009; but Transunion, a credit-reporting firm, predicts that delinquencies (60+ days past due) will rise 7 percent during 2010.

In the comedy 1984 film, Repo Man, Harry Dean Stanton plays the veteran repossessor who trains neophyte Emilio Estevez in the ways of his trade. "Repo man spends his life getting into tense situations," Stanton warns. Real-life encounters sometimes get violent, but most repossessions are drama-free.

Part of the job includes "skip tracing," trying to locate cars that are not at the debtor's stated address. Concealing the car may be a crime.

How Repos Work

Until you make the last payment, your creditor—the lender, or an assignee that has bought your contract—has specific rights to the vehicle. These are established by the contract terms, and by state laws (which vary considerably). Here's a typical sequence of events:

You miss a payment, and perhaps a second. Repos can happen even if you're one day late, but most creditors wait until two or three payments have been missed.

The mail might bring a late-payment warning, followed by a phone call.

After a specified grace period, a final warning may come.

One day, the car is gone. The Federal Trade Commission advises that a lender can repossess without going to court, or warning in advance. Repossessors can arrive anytime, and come onto your property. They cannot commit a "breach of the peace," using physical force (or threat of force). The sought-after car can be taken from a driveway, but not a closed garage.

You get a notice that the vehicle has been repossessed, stating your rights. Creditors cannot keep or sell personal property found inside the car.

After it's taken, you have a final opportunity to pay; but the total has grown, as fees are added—including several hundred dollars for the repo man.

If not redeemed, the vehicle is sold at auction. The creditor could keep the car; but in most states, you can demand that it be sold. The resale must be conducted in a "commercially reasonable manner," but does not have to bring the best price. However, resale prices below fair market value might be deemed unreasonable. You could bid yourself–provided you're able to pay for it.

After the sale, accounts are calculated. With charges added for conducting the auction, preparation for sale, towing/storage and attorney fees, the amount due has climbed even higher. Most likely, the sale price is well below the amount owed. So, the creditor sues for a "deficiency judgment." If you owed $10,000 and the car sells for $7,000, the deficiency is $3,000 (plus all the fees).

Your credit report is updated to reflect a repo, giving your credit score a major–and long-lasting–hemorrhage.

Avoiding the Repo Man

Take steps before going delinquent. Talk to the lender as soon as you expect to be late with a payment. Try to refinance the loan or extend the payment period. The American Financial Services Association estimates that repossession costs the creditor about $8,000. For that reason, it's a step that many prefer to avoid. Turning the unpaid-for car in voluntarily can eliminate some costs, but still harms the debtor's credit score, too.

Some organizations offer help. SubPrime Auto Finance News has mentioned the Avert Report, which claims to have prevented more than 24,000 repos in six months. Information may be found at www.avertrepos.com.

Beware of credit-counseling or other services that demand fees upfront, warns the Better Business Bureau. Learn more from the nonprofit National Foundation for Credit Counseling, at www.nfcc.org. Consult the Federal Trade Commission site at www.ftc.gov/credit. Contact your state's Attorney General (www.naag.org) or consumer protection agency (www.consumeraction.gov) with further questions.

Minimizing the risk of delinquency is best: Simply buy a car you can afford, with monthly payments you can meet. Things change, of course, and payments that were affordable at first can become out of reach if you lose a job or suffer a severe pay cut. Still, the less you owe, the more likely you are to find a way to stay afloat.

Hopeful Signs

By 2011, if not before, repossessions may be declining. How can that be? Simply because the number of high-risk loans granted by financial institutions has dwindled, as lenders tighten credit qualifications. Plenty of customers who might have been likely candidates for eventual repossession have been turned down repeatedly for loans.

As a result, most have wound up buying a less-costly vehicle, with more affordable payments. Or, they never bought another car at all.

Repos "will definitely come off their peak," ADESA's Kontos said. According to Transunion, in the first half of 2010, the delinquency rate is "likely to improve" due to tighter lending. Also, participants in 2009's Cash for Clunkers program help keep future repos down, because more creditworthy buyers entered that picture.

CNW Research advises that the share of auto loans being approved is dropping. In August 2009, under 85 percent of prime-credit customers seeking financing through a dealership or financial institution were granted loans. Fewer than 8 percent of subprime shoppers were approved. CNW observed that in December, the number of repos declined slightly, after eight years of steady increase.

Still, consumer bankruptcy filing rose by 32 percent in 2009, according to the American Bankruptcy Institute. Competition is growing among repo men, but most are staying busy. A survey of repossession companies by Auto Auction Services Corp. found that participants averaged 200 repos per month, for 37 regular clients.

As the developer of the Operation Repo TV show and movie put it, "repossession agents aren't the bad guys. We're just part of a system." Play the loan game wisely, make every payment, and you'll never see him at the end of your driveway, dragging your car behind.

Even if you do, it could be worse. In the movie Repo Men, coming in April 2010, actor Jude Law repossesses artificial organs from recipients who've failed to keep up the payments. Suddenly, the car-grabbers sound almost tame.