Repos, Notices, and Bad Debt
“I am in the car business, because repoing cars is dangerous and I am an adrenaline junky!” said no one EVER. Well I do know a guy, but…..
“I know better than an attorney and creating legal documents is a hobby of mine” is a statement that is only half true some of the time.
“The defaults that my BHPH (or RFC) generates is producing a revenue stream that grows each year. I am actually budgeting that the checks are going to continue to arrive each month, even after I am retired and not running the dealership anymore. You see… I do an adequate job underwriting my loans, so even after I have had to repossess the vehicle, my customers are still able to pay me. I just take the money straight out of their paycheck or bank account!” Says one of my clients and the owner of a BHPH that averages 400 accounts and has been using a third party to collect on his bad debt accounts since the late 80’s. The checks that he receives each month range from $4,000 to $15,000.
We all sit around and complain that the sub-prime customer treats our collateral like a rental. Some customers lack the motivation or “Pride in their Ride” to respect their transportation and demonstrate typical ownership behavior. It is common for a BHPH customer to drop off their vehicle and go across the street and make a new purchase, simply because the other car caught their eye.
The dealer that had their collateral dumped back on them, has the legal and contractual right to liquidate the collateral in a commercially reasonable manner (repo sale) and go after their customer by way of a law suit and judgment. This is not as complicated as it sounds. Quite frankly, the commercially reasonable sale part of the equation should already play a role in your repossession process, unless your customer negotiates voiding the contract and they sign the title back over to the dealership.
A legal repossession sale follows state law and federal regulations. Every state has a requirement to send a legal notice to the customer after repossession. This notice states that the vehicle will be sold at a public or private repo sale in 10, 15, 20, 21 or 30 days, depending on the state. After the repossession sale, the customer must receive an Explanation of Deficiency. A vehicle condition report is a powerful tool that is necessary to document the wear and tear on a vehicle at time of repossession. A solid vehicle condition report will support the values in the Explanation of Deficiency. In a few cases the dealer or lender can accept the vehicle back and forgive the debt. Consult your accountant or tax professional to see if this will require you to file a 1099c for each account forgiven.
Drop, Walk, & Drive is an epidemic that can be cured by lenders, BHPH dealers, and finance companies pursuing the bad debt that comes from the attitude that a customer can walk away from their obligation, simply because they feel like it. If customers on a larger scale are held accountable for the contracts they sign, more of them will take the ownership of the collateral serious. Maybe not at first, but it will eventually sink in that the oil needs to be changed occasionally if they are going to have to depend on the vehicle for transportation until they have enough equity to trade up.
The same can be said for the customer that quits paying and keeps driving the vehicle until the repo agent catches up with them. Whether they return the vehicle voluntarily or it is repossessed, they chose to ignore their obligation.
Defaulted accounts are revenue that never made it to the bank. Finding a third party relationship to partner with on a contingency fee basis will add to the bottom line and eventually create better customers for our industry. I know this first hand.
NoticeofIntent.com provides a web-based dealer portal that at first seems like a compliance tool. At second glance it is obvious that it was created to recover lost income. Our attorneys are ready on a contingency fee basis for your accounts to be submitted through the program. Most users experience “Free Money” within the first year! Free money is when money that has been written off and forgotten about is recovered.
Not all accounts will generate “Free Money” right away. Defaulted account recovery and collections is a tough industry. Judgments accumulate interest and over time can mature into a very high balance. These accounts are the ones that surprise you one day long after they were forgotten about. Default recovery is not a fit for every business model, but if you are looking a low cost, high yield revenue stream…create your account with NoticeOfIntent.com right now!