Repossession: Consumer Rights and Lender Obligations

Maryland law provides a process by which a lender may repossess goods securing a loan.  For example, assume a person obtains a loan to person to buy a vehicle and that loan is secured by the purchased vehicle.  If that purchaser does not live up to the repayment provisions of that loan, the lender may repossess that vehicle.  The legal term for not repaying the loan is “default.”  Generally, a borrower is in default if that borrower fails to make a payment due under the loan’s terms.   

At least 10 days before repossessing the goods that secured the loan (in this case the vehicle) on which the borrower defaulted, the lender MAY, in writing, inform the borrower of his intent to repossess the goods.  If the lender does not send one of these discretionary notices, they cannot charge the borrower any repossession expenses.  Regardless of whether the lender informs the borrower of their intent to repossess the goods, within 5 days after a lender repossess goods, that lender must send or deliver to the borrower a notice.  The notice must briefly state the right of the borrower to retake possession of the goods and the amount payable for them. (Retaking possession of the goods is legally referred to as redeeming the goods).  The notice must also state the right of the borrower as to a resale and the borrower’s liability for any deficiency.  (Resale is the sale of the borrowed goods by the lender.  The proceeds of the sale are used to pay the deficiency.)  Further, the lender must inform the borrower where the goods are stored and the address where any payment is to be made.  The lender cannot sell or dispose of the goods for at least 15 days after such written notice.

During this 15 day period, the borrower may redeem and take possession of the goods and resume performance of the loan agreement.  Basically, to redeem the goods, the borrower must pay any amounts due under the loan agreement.  Further, if the lender provided advance notice, the borrower must pay the expenses of retaking and storing the goods.

If the borrower does not redeem the goods, the lender may sell the goods at a private or public sale.  At least 10 days before the sale, the lender must notify the borrower in writing of the time and place of sale.  If the goods are sold at a private sale, the lender must, in writing, provide the borrower a full accounting of the sale.  The Commissioner of Financial Regulation may determine that the sale was not done in a commercially reasonable manner and enter an order disallowing any claim for a deficiency balance.  If the goods are sold at a public sale, the lender must provide the borrower a written statement showing the distribution of the sale proceeds.

Finally, the lender is not required to sell the goods.  Rather the lender may keep the repossessed goods.  If the lender keeps the goods, the borrower is discharged from all obligations.

If the lender does not follow these requirements, they are prevented from collecting a deficiency judgment from the borrower.

A Vehicle Buyer's Protections When Financing Is Not Approved

If a consumer buys or leases a motor vehicle from a dealer and the dealer arranges for the consumer to receive financing through a third party, Maryland law provides both the consumer and the dealer certain protections.  When a consumer buys a vehicle, both the consumer and the dealer must sign a dealer provided notice that discusses your legal protections.   

That notice should inform the consumer that if the third party finance company does not approve the financing within 4 days of the delivery of the vehicle to the consumer, the dealer must notify the consumer in writing that the financing has not been approved.  Upon receiving this notice, the consumer or the dealer may cancel the lease or sale.  Alternatively, the consumer and the dealer may agree on new financing terms.

If the consumer or the dealer cancels the sale or lease because of financing, the dealer must immediately return all money paid to the consumer.  This includes the down payment, any subsequent payments, all taxes, fees (including titling fee), and any other charges assessed.  If the consumer traded in a vehicle, the traded in vehicle must be returned to the consumer in the same condition in which it was when delivered it to the dealer.  Furthermore, the dealer is not permitted to charge the consumer for use of the vehicle.

Of note, within two days of receipt of the notice that financing was not approved, consumers must return the vehicle to the dealer.  Except for normal wear and tear, the vehicle must be returned in the same condition in which it was when the consumer received it.  If the consumer does not return the vehicle, the dealer may repossess it.  However, even if the vehicle was not returned to the dealer a consumer may be able to collect financial damages.