Can a Lender Repossess a Car Without a Legal Lien?
When a lender tries to repossess a car, he's exercising his rights under a legal document known as a lien. When a lender provides money for a car purchase, there is a possibility that the borrower may not pay him back. A lien provides security against this risk. It is important for borrowers to understand the basics of liens and to know their rights in the event of a repossession.
Other People Are Reading
-
Basics of Car Liens
-
A lien is a legal document that secures a loan with a piece of property. In the case of a car loan, the debtor's agreement to pay is almost always secured with a lien against the car itself. The lender's ability to exercise this lien is not absolute — he must follow the terms of the loan agreement with the borrower and the provisions of state law. While not every lien is consensual, a borrower usually agrees to the lien when he takes out a car loan.
Repossession
-
A lien grants its holder the right to take possession of property named in the document. A lender usually repossesses a vehicle as a last resort if the borrower has consistently failed to meet his obligations. According to Craig Howie, a financial reporter for AOL Autos, "the bank or lien holder has to fulfill several legal requirements before it can repossess a car." The lender usually has to give the borrower notice of his intention to repossess, and meet the paperwork filing requirements of local and state law.
-
Repossession Without a Lien
-
A lender cannot repossess a vehicle if he cannot prove he has a legally valid lien. This is because the lien is the very document that grants him this right; without it, the lender has no property interest in the car. It is rare for a lender to provide a loan without placing a lien on the collateral. Even a valid lienholder may not succeed in repossessing a vehicle if he conducts the repossession improperly or violates his end of the loan agreement.
Wrongful Liens
-
Not all liens are legally viable. In some unusual circumstances, a person may record a wrongful lien against another's property. In essence, a wrongful lien is a legally invalid document that its holder nonetheless claims in court, in an attempt to create a property interest where there isn't one. It is generally considered a type of fraud and in many states carries substantial legal penalties. In Utah, for example, recording a wrongful lien is a third degree felony.
-
References
- Pinal County Arizona; Vehicle Impound--Lienholder Information; 2011
- California Department of Consumer Affairs; Frequently Asked Questions--Repossession Agency (RA); 2011
- AOL Autos; Car Repossessions 101; Craig Howie; Nov. 13, 2008
- Nolo; Lien Definition; 2011
- Legal Services of Northern Virginia; Debt Collection; 2010
- The Arizona Republic; A False Lien Can Bring Trouble; Christopher Combs; Sept. 7, 2011
- Utah Code; Wrongful Liens and Fraudulent Handling of Recordable Writings — Penalties; 2011
Resources
- Photo Credit Comstock Images/Comstock/Getty Images
