Foreclosure & Alternatives Law

How Can a Creditor Repossess Property?

Many Americans experience a time when their financial obligations become overwhelming and they are unable to pay all of their outstanding obligations on time. A debtor who defaults on a secured loan may face the threat of property repossession. A creditor can repossess property only if the creditor has a valid security interest in that property and if the creditor follows the proper legal procedures for repossessing the property.
The specific laws regarding property repossession vary from state to state but generally include:
·         The Creditor Must Have a Valid Security Interest in the Property: that means that the security interest must have been created in compliance with all state laws. In order to enforce a security interest, the creditor must not only enter a binding loan contract creating the security interest but also file, or record, the security interest with the state in order to retain a priority interest in the secured property.
·         You Must be in Default on the Loan or Fail to Pay the Accelerated Loan: your loan document explains when you are in default on the loan and when the creditor may demand that you pay the remainder of the loan. If you have been making your regular payments on time then you are likely not in default on the loan and the creditor probably does not have the right to repossess your property.
·         You Must be Given Notice and the Right to Cure: most states require creditors to provide notice to debtors prior to repossessing property. The notice usually contains the legal authority the creditor has to repossess the property. It also provides debtors with a certain amount of time to pay the loan and any outstanding fees or penalties. If the debtor pays his or her obligations within that time then the creditor loses the right to repossess the property. However, if the debtor does not pay his or her obligations by the date contained in the letter then the creditor has the legal right to repossess the property.
·         The Creditor May Not Disturb the Peace: a creditor has the right to repossess property, without a court order, but only if it can be done without breaching the peace. That means that the creditor may not force entry to your home, intimidate you, or do anything unlawful to obtain custody of the property. For example, if a creditor is repossessing your car then the creditor may take possession of the car that is parked in a parking lot or your driveway but may not break into a locked garage to get the car. If the car, of other property, is out of reach and the debtor refuses entry then the creditor would need to seek assistance of the court to obtain the property.
If the creditor violates any of your rights then the property repossession may have occurred illegally and you may have the right to compensation. Therefore, it is important to understand how a creditor can legally repossess your property and to protect yourself should you find yourself in a situation where repossession is an option.
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