California Repossession Laws

California Repossession Laws

As a consumer attorney in California, I understand how challenging it can be when faced with the prospect of vehicle repossession. It’s a situation that can leave you feeling helpless and unsure of your rights. That’s why I’ve put together this guide to help you navigate the complexities of California’s repossession laws. My aim is to empower you with knowledge, so you can make informed decisions and protect your  rights.

Understanding Repossession

Repossession is a process that lenders use to take back vehicles from borrowers who have defaulted on their loans. Defaulting on a loan can be because of a failure to make timely payments, not maintaining required insurance, or violating any other terms of your loan agreement. In such cases, the lender has the right to repossess the vehicle that was used as collateral for the loan.

This car repossession process, while straightforward in its goal, is governed by specific laws and procedures that can vary significantly. It’s important to understand California repossession laws so you can know what to expect and how to respond if you find yourself facing repossession.

Remember, this guide is meant to provide general information and should not replace legal advice tailored to your specific situation. If you’re facing repossession, I strongly recommend consulting with a legal professional to explore your options and protect your rights. If you experienced a repossession in California you feel may have been unlawful, contact our office for a consultation.

Licensing Requirements for Repossession Agencies

In California, the law mandates that all repossession agencies and their employees must be licensed. This requirement is overseen by the Bureau of Security and Investigative Services (BSIS). The aim is to ensure that these agencies operate within the confines of the law, providing a level of protection for consumers.

However, there’s an important exception to this rule. Employees who are directly employed by a bank, financial lender, or the legal owner of the vehicle are not required to be licensed as repossession agency employees. This means that if your vehicle is being repossessed by an employee of your lender, they may not necessarily hold a repossession license.

As a consumer, it’s crucial to be aware of these licensing requirements. If your vehicle is being repossessed by a repossession agency, you have the right to request proof of licensure. This can help ensure that the repossession process is being conducted legally and professionally.

How Repossessions Work

Repossession is a process that comes into play when a borrower violates certain conditions of their loan or lease agreement. These conditions can include:

  • Being past due on vehicle loan or lease payments
  • Failure to maintain required insurance on the vehicle

When these violations occur and aren’t rectified, the lender or legal owner of the vehicle can take action. They may contract with licensed repossession agencies to locate and repossess the vehicle. This is typically done under the terms of a security agreement that includes a repossession clause.

The Role of Repossession Agencies

Repossession agencies play a crucial role in this process. They are tasked with locating and repossessing the vehicle on behalf of the lender or legal owner. Many of the activities carried out by these repossession companies before, during, and after the repossession are regulated by both state and federal laws.

Regulations Governing Repossessions

These regulations are designed to protect consumers and ensure fair practices. They dictate how and when a vehicle can be repossessed, what happens to personal property found in the vehicle, and what rights the borrower has during and after the repossession process.

In essence, the repossession process in California is a regulated procedure that involves multiple parties and is governed by a set of specific laws. Understanding California repossession laws and the roles of the various parties involved can help you navigate the process more effectively if you ever find yourself facing vehicle repossession.

Understanding the licensing requirements for repossession agencies in California is a key part of protecting your rights during the repossession process. It allows you to verify the legitimacy of the repossession and provides a level of accountability for the agencies involved.

Impact on Credit Score

Repossession can have a significant impact on your credit score, which can affect your financial future. Here are some key points to understand about the impact of repossession on your credit:

  • Credit Score Damage: When a repossession is listed on your credit report, it can have a negative impact on your credit score. This negative mark indicates to potential lenders that you’ve had difficulty managing your loans in the past.
  • Credit Reporting Duration: A repossession can stay on your credit report for up to seven years from the date of the initial missed payment that led to the repossession. During this time, it can lower your credit score and make it more challenging to obtain new credit or secure favorable interest rates.
  • Difficulty Obtaining Loans: A repossession on your credit report can make it more difficult to get approved for loans, including auto loans, mortgages, or credit cards. Lenders may perceive you as a higher risk borrower and may offer less favorable terms or deny your application altogether.
  • Impact on Interest Rates: Even if you’re approved for a loan after repossession, you may face higher interest rates due to the perceived higher risk. This can result in higher monthly payments and increased costs over the life of the loan.
  • Rebuilding Credit: While a repossession can have a negative impact on your credit, it’s not the end of the road. With responsible financial habits and time, you can rebuild your credit score. Paying your bills on time, reducing debt, and using credit wisely can all contribute to improving your creditworthiness over time.

NOTE: The exact impact on your credit score will depend on various factors, including your overall credit history and the presence of other negative marks on your credit report. Understanding the potential consequences can help you make informed decisions and take steps to mitigate the impact on your credit.

Alternatives to Repossession

There are several alternatives to repossession that you might consider if you’re struggling to keep up with your loan payments:

  1. Refinancing: If you qualify, you might be able to refinance your loan to secure a lower interest rate or more manageable monthly payments.
  2. Selling the Car: If your car is worth as much or more than the balance of your loan, selling it could allow you to pay off the loan and avoid repossession.
  3. Voluntary Surrender: If you’re unable to make your loan payments and other options aren’t feasible, you may be able to voluntarily surrender the car to your lender. This can potentially reduce your financial liability and cause less damage to your credit than a forced repossession. Check with your lender to see if this is an option within your contract.

Remember, these options each have their own implications and should be considered carefully. Consulting with a financial advisor or legal professional can help you understand which option might be best for your situation.

Tips for Negotiating with Lenders

If you’re facing financial difficulties that might lead to repossession, it’s often a good idea to communicate with your lender. Here are some tips for negotiating with your lender:

  1. Open Communication: Reach out to your lender as soon as you realize you’re having trouble making payments. The sooner you communicate your situation, the more likely they are to work with you.
  2. Propose a Plan: Come to your lender with a proposed payment plan. This shows that you’re proactive and serious about paying off your loan.
  3. Be Honest: Be honest about your financial situation. If your financial difficulties are temporary, let them know. If it’s a long-term issue, be clear about that as well.
  4. Document Everything: Any agreement you reach with your lender should be documented in writing. This protects your interests and ensures you have a record of what was agreed.

Generally lenders prefer to avoid the repossession process if possible, as it can be costly and time-consuming. They might be willing to work out a modified payment plan, grant you a payment deferral, or even reduce your loan balance.

Rights and Responsibilities During Repossession

Navigating the repossession process can be challenging, but understanding your rights and responsibilities can make it less intimidating. Here’s what you should know if your vehicle is being repossessed in California:

Your Rights

  • You have the right to request proof that the individual carrying out the repossession is currently licensed as a repossession agency, qualified manager, or agent.
  • A repossession licensee or its agent can repossess your vehicle whether or not you are present.
  • A repossession licensee or its agent is not required to allow you to remove your personal property from the vehicle at the time of the repossession. However, it’s not prohibited, so you should ask if it would be permissible to remove your personal property from the vehicle.

Limitations on Repossession

Repossession agents have certain limitations on where and how they can repossess a vehicle:

  • They can enter a parking lot or garage open to the public, even if it is privately owned, to repossess a vehicle.
  • They can enter a gated community with unrestricted entrances and open to the public to repossess a vehicle.
  • They cannot enter a gated community with entrances that restrict public access to repossess a vehicle without the consent of the property owner or person in lawful control of the property.
  • They cannot enter the garage of a person’s residential home to repossess a vehicle without consent of the property owner or person in lawful control of the property (e.g., renter).
  • They cannot enter the private property of a person’s residential home that is surrounded by a secured fence and gate to repossess a vehicle without the consent of the property owner or person in lawful control of the property (e.g., renter).

After Repossession

After the repossession, the agency must inventory all personal effects found in the vehicle, except for those personal effects that the licensee or agent allowed to be removed at the time of the repossession, within the timeframes specified by law and store the personal effects for a minimum of 60 days. They may discard any personal effects not claimed after 60 days, but must keep the inventory list along with information on how the effects were disposed of on file for four years.

Reinstating a Vehicle Contract After Repossession

In the aftermath of a vehicle repossession, you might be wondering if there’s any way to reclaim your vehicle. In California, one such avenue is through the process of reinstatement.

What is Reinstatement?

Reinstatement involves rectifying the default that led to the repossession. This usually means catching up on your missed payments and paying any fees related to the repossession. Once this is done, you may be be able to reclaim your vehicle and resume your monthly payments as per the original agreement.

The Role of the Bureau

It’s important to note that the Bureau of Security and Investigative Services (BSIS) does not have jurisdiction over whether or not the vehicle’s legal owner will reinstate your contract. The decision to allow reinstatement ultimately lies with the legal owner of the vehicle.

Steps to Reinstatement

If you’re able to secure a reinstatement, you’ll need to provide the repossession agency with a release from the legal owner. This release should state that you may redeem your vehicle. Additionally, you may need to provide proof of having paid the administrative filing fee to the police or sheriff’s office, where the repossession was reported.

A Word of Caution About Reclamation

Please note that in some cases, you may not be able to reclaim your vehicle after it has been repossessed. Each situation is unique, and the specific terms of your loan or lease agreement, as well as the policies of your lender, will play a significant role in determining your options after repossession.

Understanding the process of reinstatement can provide a glimmer of hope in the challenging situation of vehicle repossession. However, it’s crucial to remember that reinstatement is not guaranteed and depends on various factors, including the policies of your lender and the terms of your loan agreement.

Unlawful Repossessions and Legal Protection

California repossession laws protect consumers from unlawful repossession practices. Understanding these legal protections is essential. Here are key points regarding unlawful repossession and the associated legal safeguards:

  1. Breach of Peace: Repossession agents in California are prohibited from breaching the peace during the repossession process. This means they cannot use physical force, threats, or intimidation tactics when taking possession of the vehicle. If a repossession agent breaches the peace during the repossession, it may be considered an unlawful repossession.
  2. Self-Help Repossession Restrictions: California has restrictions on self-help repossession, which is when the lender or legal owner repossesses the vehicle without involving a repossession agency. Self-help repossession is only allowed if it can be accomplished without breaching the peace. Otherwise, the repossession must be carried out by a licensed repossession agency.
  3. Unauthorized Entry and Trespassing: Repossession agents are not allowed to enter private property without the consent of the property owner or person in lawful control of the property, such as a gated community or a private residence with restricted access. Unauthorized entry and trespassing during repossession can be deemed unlawful.
  4. Notification Requirements: After a repossession, the repossession agency is required to provide the borrower with a notice containing specific information within a certain timeframe. Failure to provide the required notice or providing false or misleading information can be considered unlawful.
  5. Default and Impaired Prospect of Payment: A financial institution can only repossess a vehicle if there is a “default” on the contract, and they have a good faith belief that the prospect of payment or performance is impaired.
  6. Types of Defaults: A default can occur when the consumer fails to meet any obligation under the contract. Common defaults include missed payments, lack of car insurance, or other violations specified in the contract.
  7. Estoppel: If the lender has previously allowed late payments and the borrower is just a few days late, repossession may be questioned. The lender’s knowledge of habitual late payments may affect their good faith belief in impaired future payments.
  8. Unlawful Repossession with No Default: Repossession can be unlawful if there is no default at all, such as mistaken repossession due to mix-ups, miscommunications, or errors in the financial institution’s records.
  9. Yo-Yo Financing and Wrongful Repossession: In some cases, repossession may occur when there is no default or mistake. Dealerships, attempting to cancel contracts after the cancellation period, may wrongfully repossess vehicles.
  10. Legal Recourse: If you believe you have been a victim of wrongful repossession, it is crucial to seek legal assistance to understand your rights and potential legal remedies.

Understanding these legal protections and potential violations is essential for consumers facing or concerned about repossession in California. It is advisable to consult with a legal professional to assess your specific situation and determine the best course of action if you suspect an unlawful repossession has occurred.

Post-Repossession Procedures

Once a vehicle has been repossessed, there are certain procedures that the repossession agency must follow. These procedures are designed to protect your rights and ensure transparency in the process.

Notification to Law Enforcement

A repossession licensee or its agent must notify local law enforcement within one hour of repossessing a vehicle. If contact is not made, continued attempts are required until the repossession is recorded with the local agency. Written notice to local law enforcement must also be made within one business day of the repossession.

Providing Notice to the Borrower

The repossession agency is also required to provide you with a notice, usually within 48 hours, but in all cases in no less than 96 hours after the repossession takes place. This notice, which can be delivered by mail or personal service, includes:

  • The name, address, phone number of the vehicle’s legal owner.
  • The name, address, phone number of the repossession agency.
  • Statements and disclosures as required by law about licensure requirements for repossession agencies and their employees, timeframes in which the notice is required to be provided to you, damage to the vehicle during the repossession or while in the possession of the repossession agency, and if applicable, information about the handling of special license plates.
  • Storage charges for personal effects.

Displaying License Information

A licensed repossession agency must either display its license number OR business name, address, and phone number on both the left and right side of its tow vehicle. If a repossession agency chooses to display its license number, then the repossession agency is not required to display its business name, address, and phone number on the tow vehicle.

These post-repossession procedures are crucial to ensuring that your rights are protected and that you are kept informed throughout the process. If you find that any of these procedures have not been followed, it may be advisable to seek legal counsel.

Additional California Repossessions Regulations & Procedures

Repossessions of Registered Vehicles Sold through Wholesale Motor Vehicle Auctions in California

When a vehicle is repossessed and subsequently sold through a dealer conducting a wholesale motor vehicle auction in California, there is an opportunity to waive renewal penalties. To qualify for the penalty waiver, all fees must be paid within 60 days from the last auction date.

If there are multiple wholesale motor vehicle auctions involved, the 60-day period restarts with each subsequent auction, as long as the repossessed vehicle remains within the legal owner/dealer/wholesale motor vehicle auction cycle. This applies even if one of the dealers involved is located out of state. The penalty waiver can be applied up until the final wholesale auction date if payment is made within 60 days of the last auction.

In the event that the repossessed vehicle is sold to a retail customer during the legal owner/dealer/wholesale motor vehicle auction cycle and later returns to a wholesale motor vehicle auction (e.g., due to an unwind), the renewal fees must be paid within 60 days from the last auction date prior to the retail sale to avoid penalties.

Additionally, the following requirements must be fulfilled, in addition to the Basic Transfer Requirements, for repossessions of registered vehicles sold through wholesale motor vehicle auctions:

  1. Submission of a Certificate of Repossession (REG 119) form.
  2. Payment of repossession and transfer fees if the repossessor is not the registered owner.

If a dealer seeks a renewal penalty waiver, they must submit a Statement of Facts (REG 256) form, providing the following information:

  • Request for a renewal fee penalty waiver.
  • Indication that the vehicle is a repossessed vehicle.
  • Confirmation that the repossessed vehicle was sold through a dealer conducting a wholesale motor vehicle auction.
  • The date of the last wholesale motor vehicle auction and acknowledgment that all renewal fees due have been paid within 60 days of the last wholesale motor vehicle auction date.

For leased vehicles, where the lessor is the registered owner, the vehicle is returned to the lessor if the lessee defaults on payments. The lessor’s release is required on the title to transfer ownership. If the repossessed leased vehicle is subsequently leased to another lessee by the lessor, no repossession fee is due.

See this page for more information.

Repossessions When Legal the Owner is Not on Record

 When a vehicle is being repossessed and the legal owner is not listed on the record, there are additional requirements to be fulfilled for the transfer process. These requirements include:

  1. Submission of the original or certified copy of the Conditional Sales Contract or Security Interest Agreement.
  2. Completion of a Certificate of Repossession Security Interest (REG 119) form.
  3. Presentation of a bill of sale from the repossessor to the purchaser if the vehicle is not being registered under the repossessor’s name.
  4. Payment of a repossession fee for the unrecorded transfer to the repossessor if the vehicle is registered in California. If the vehicle is registered under a different name than the repossessor, a transfer fee is also applicable.

By including this summary, readers will have an understanding of the specific requirements and procedures involved in cases where the legal owner is not on record during a repossession.

Repossessions of New Vehicles

When it comes to repossessions of new, unregistered vehicles from a dealer, the following requirements must be met:

  1. The buyer must complete an Application for Title or Registration (REG 343) form.
  2. If the REG 343 form doesn’t indicate that the vehicle was previously registered, either the finance company or the buyer must complete a Statement of Facts (REG 256) form stating that the vehicle was not previously registered.
  3. A Verification of Vehicle (REG 31) form is needed.
  4. A certified copy of the trust receipt or flooring note agreement between the finance company and the dealer is required.
  5. The finance company must execute a Certificate of Repossession (REG 119)
  6. Bills of sale may be necessary to establish the chain of ownership.
  7. If applicable, a smog certification is required.
  8. Registration fees based on the original purchase price and date of sale by the first buyer must be paid, along with a transfer fee for the second buyer. However, if the registration fees are paid within 20 days from the date of sale to the first buyer, the dealer will not be charged an ASF (Administrative Service Fee) for any over 20-day violation, regardless of the duration the report of deposit of fees (RDF) is held pending the sale to the second buyer. The dealer has 30 days to submit the transfer application without penalty.

In the case of repossessed vehicles being sold through a dealer conducting a wholesale motor vehicle auction, there is a possibility of waiving the renewal penalties if all fees are paid within 60 days of the last auction date. If there are multiple auctions involved, each subsequent auction restarts the 60-day period, as long as the vehicle remains within the legal owner/dealer/wholesale motor vehicle auction cycle, even if one of the dealers is located out of state. The waiver of penalties can be applied until the final wholesale auction date if the fees are paid within 60 days of the last auction.

If the vehicle is sold to a retail customer during the legal owner/dealer/wholesale motor vehicle auction cycle and subsequently goes back to a wholesale motor vehicle auction (e.g., due to an unwind), the renewal fees must be paid within 60 days of the last auction date prior to the retail sale to avoid penalties.

To request a renewal penalty waiver, the dealer must submit a Statement of Facts (REG 256) form, which should include the following information:

  1. Request for a renewal fee penalty waiver.
  2. Identification of the vehicle as a repossessed vehicle.
  3. Confirmation that the repossessed vehicle was sold through a dealer conducting a wholesale motor vehicle auction.
  4. Date of the last wholesale motor vehicle auction and confirmation that all renewal fees due have been paid within 60 days of the last auction date.

Empowering Individuals Through Knowledge: Navigating California’s Repossession Laws

Navigating the complexities of vehicle repossession can be overwhelming, but understanding California’s repossession laws, the rights and responsibilities of all parties involved, and the necessary procedures can empower you to confidently handle this challenging situation.

Repossession involves multiple parties with distinct roles and responsibilities, from repossession agencies to licensing requirements and post-repossession procedures, all governed by laws that safeguard your rights and ensure fairness.

Knowledge is your strongest ally in repossession. By familiarizing yourself with the laws and procedures, you can navigate the process, protect your rights, and make informed decisions.

Remember, this guide provides general information and should not replace personalized legal advice. If facing repossession, it’s highly recommended to consult with a legal professional who can guide you and safeguard your rights. As a consumer attorney in California, I’m here to assist you in navigating these complexities and advocating for your rights. If you feel you may have experienced an unlawful repossession in California, contact me for a free consultation.

May 30, 2023