Thousands of Pennsylvanians owe money to a bank, finance company, or creditor. The lender, when providing funds, often has a security interest in property owned by the borrower — a phenomenon known as collateral.
Having this security interest provides protection to the creditor in the event the borrower doesn’t repay the loan, allowing them to repossess (or take back) the collateral. Two of the most common forms of secured borrowing are for vehicles and real estate. Read on to learn more about repossession laws in Philadelphia, Pennsylvania.
How can a creditor lawfully repossess property and how can borrowers protect themselves?
Creditors are not allowed to just walk into the borrower’s home and take property. Retrieving collateral must be done peacefully. This means that the borrower can tell the creditor “no” and deny them access to their home. In fact, if the creditor persists after being told “no,” they are breaking the law. If this point has been reached, the creditor must go to court.
This may buy the borrower some time to stop the proceedings, but if the creditor is successful, it’s also possible that the amount owed will increase. Moreover, property can’t be taken back without a written and signed security agreement that has a clear identification of the collateral in the event of non-payment. If the law is broken, the borrower can sue the creditor in a court of law.
Does the creditor have to give a warning prior to a repossession?
In most cases, no warning is required, but there are two exceptions. If the collateral is a mobile home, it cannot be repossessed without a 30-day written notice and an opportunity to catch up payments and fees associated with contract violation to prevent repossession.
The borrower can prevent repossession of a mobile home even after the 30-day warning has passed, but it may cost more in court costs and attorney fees. In other cases of collateral, excluding a vehicle, a 21-day notice is required to give the borrower the opportunity to catch up on their payments and prevent repossession by the creditor.
What happens after repossession?
After the creditor repossesses the collateral, they’ll likely try to sell it. However, the borrower must be given written notice of the location and time of sale. Especially in the case of real estate, it’s a good idea to attend the sale to ensure it was done in the best possible manner to get the best outcome. This is because the sale will be applied to the debt, so it is in the best interest of the borrower to make sure that it’s done right.
If the collateral is sold during an auction, the borrower can take interested parties and get written bids for the creditor. Even through this process, prior to sale, it is possible to retain the property if the past-due payments are made or an agreement is made with the creditor. If the collateral was a vehicle, the borrower can get their personal property back from it after repossession.
What happens if the sale isn’t enough to cover the debt?
If the collateral is sold, but not enough is paid to pay off the debt, the borrower may still have to pay the amount due, even if the property was voluntarily given up. For example, if the borrower owes $15,000 on a vehicle, but the creditor only gets $12,000, the borrower may still be liable for the last $3,000.
If the repossession is done legally and the borrower doesn’t pay the balance, the creditor has the legal right to sue the borrower for payment. If the borrower is sued, legal consultation is important because there’s a very short time period to respond. If the repossession is not done legally, the borrower may not have to pay the balance and may have the right to sue the creditor.
Can creditors repossess other property?
No. Creditors can only repossess the agreed-upon collateral. However, if the creditor sues the borrower and wins the case, a sheriff or constable can come take other property to repay the debt.
How can repossession be avoided?
To begin with, borrowers need to be aware of their financial situation. Thus, the most important step to avoid repossession is to avoid becoming overwhelmed financially. When purchasing something that requires a collateral, the borrower needs to ensure they can cover the payment if there are income fluctuations. Just as importantly, the borrower needs to know how much they can afford to buy. This means that the borrower must be resistant to pressure to purchase something outside of their range, such as a fancier vehicle that will significantly increase the balance. The same is true when buying real estate. If the borrower can only afford and only needs a 2-bedroom house, they shouldn’t get a 3-bedroom house. Borrowers also need to be aware of the interest rate and additional fees, as well as the reason for the additional fees.
It’s also important that borrowers communicate problems with creditors. If creditors know ahead of time, they’re more likely to be lenient to help resolve the issue, such as extending repayment or refinancing the loan. It’s also possible that creditors will allow the borrower to repay the back debt over periods of new payments, such as an additional 10% on top of the regular payment for 10 months. In some cases, a Chapter 13 bankruptcy is the best option to avoid repossession and resolve credit problems. However, this requires a specialized lawyer. There are many different options and the borrower must decide the best one for their specific situation.
Regardless of the situation, the law changes frequently, not only at the federal level, but also at the local level. Moreover, each case is different and should be approached as such. While general information, such as found in this blog, is invaluable, it doesn’t take the place of legal advice regarding specific situations. If you’re facing a repossession, contact us to see how we can help you protect your property and rights.
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