Resale of repossessed car Lawyer Manual

Stopping the creditor from reselling the car

After the repossession, a creditor in Illinois must send a notice to the consumer stating that the creditor intends to apply to the Secretary of State for a repossession certificate of title 625 ILCS 5/3-114(f-7)(1-4). With that notice must be an "Affidavit of Defense" form for the consumer to list any defenses which the debtor may have either to the repossession or to the amount of money which the creditor is claiming is due. If the debtor mails this Affidavit to the creditor by certified mail within 21 days, the creditor cannot immediately obtain the title from the Secretary of State. Instead, “the lienholder must apply to a court of competent jurisdiction to determine if the lienholder is entitled to possession of the vehicle.” 625 ILCS 5/3-114 (f-5) (2).

Without the title, the creditor/lienholder cannot re-sell the car. The creditor will then have to either file a lawsuit, usually detinue or declaratory judgment action against the debtor to settle the matter, at which time the debtor's defenses will be decided. If the creditor files such a lawsuit, the debtor may end up owing more money for the creditor's legal fees if the court determines there was no basis for the defense. The creditor may seek to negotiate a settlement with the debtor instead of filing suit. Any negotiated settlement should be in writing. If the creditor does nothing after receiving an Affidavit of Defense, the debtor will have to go to court to ask for an award of damages or for the car back.

Resale and deficiencies

Creditors usually try to re-sell a repossessed car to collect on the car loan debt owed. If the amount the creditor receives at the resale pays off only part of the amount owed, the creditor usually will go after the debtor for the rest, called the deficiency. Debtors are often sued to recover the deficiency balance.

Because the creditor must meet many technical legal requirements in connection with the resale, there may be many legal claims and defenses available if the creditor slips up. If the creditor is seeking a deficiency, always check for the following:

• Was the repossession unlawful?
• Has the creditor kept the collateral or has he re-sold it? 
• Has the debtor received a proper written notice of the intended re-sale?
• Was the sale conducted in a commercially reasonable manner?
• Are there any other defenses?

Notice requirements

If the creditor decides to resell the car, then the creditor must send the debtor a proper written notice about the intended resale, which can be either public or private. For a public sale, such as an auction, the notice must include the time, date and place of the sale. For a private sale, the creditor must state the date after which the sale will be held. The requirements of the notice are set out at 810 ILCS 5/9-613 and 5/9-614.

The purpose of the notice is to give the debtor a chance to redeem the vehicle before resale, to give the debtor a chance to find potential buyers for the vehicle, and to give the debtor a chance to observe every aspect of the sale to make sure the vehicle is sold for a fair price.

Other Requirements of the Notice:

• It must tell the debtor about their redemption rights
• It must give enough time to redeem or to find other buyers before the resale
• It must be given not only to the primary debtor but also to cosigners and guarantors
• It must be correctly addressed
• If it states the wrong information on the notice, such as wrong date or sale location, the notice is no good
• It must be written
• If the creditor learns that the debtor did not receive the notice and took no steps to correct it, the notice is no good
• A debtor must be sent a new notice if the sale gets rescheduled

Commercially responsible resale

The law requires that all aspects of the resale must be commercially reasonable. This means that the manner, method, time, place, and terms of the resale must all be reasonable by commonly accepted commercial practices. The creditor must use every reasonable means and their best efforts to obtain the full value of the car or other property. However, just because the sale brought a low price for the car does not prove that the sale was unreasonable. But, if there is a big difference between the price obtained at resale and the true value of the car, a judge might look very closely at all aspects of the sale to see if it was fair.

Consider looking at references from the public library like the "red book" or "blue book," which is published at regular intervals to discover the book value of the car at any given point in time. However, you must also consider the actual condition of the subject vehicle when estimating value.

Private sales

The creditor is not allowed to bid upon or purchase the property. More than one bid must be solicited. A non-arms length sale to a related entity or the originating dealer may not comply. If the notice of resale informs the debtor that the sale is to be private, it must be a private sale.

Public sales

This is usually an auction and the most common method of disposition. Here, the creditor is allowed to bid upon and purchase the property. More than one bid must be obtained. It requires appropriate advertising or other publicity to attract bidders. The secured property must be available for inspection by the public before and during the sale. The sale must occur at a convenient location and be accessible to all members of the community. It should not take place in bad weather. If the notice informs the debtor that the sale is to be public, it must be a public sale.

Automobile "dealers only" sale.

This kind of sale may be unreasonable because the consumer is denied the chance to take part in the sale. Also, if the creditor has a retail store (such as a car dealer) available to it, the property should be sold through the store on a retail basis. Sales at wholesale and to dealers will usually bring a much lower price.

Other Requirements:

• The creditor should prepare or recondition the property in order to bring the best price at the sale
• The creditor has the duty to use care in preserving the property from the time it is repossessed until the time it is sold
• The sale must be made to a purchaser who bids in good faith. There can be no collusion or alliances between the creditor and the purchaser
• The sale should not be held too quickly after the repossession, but it should not be delayed too long (60 days may be too long). If the sale is too late, the debtor can claim that the creditor decided to keep the property, and the debtor should not be liable for a deficiency
• If the creditor had access to a retail outlet (Ford Motor Credit has access to Ford dealerships) then the repossessed vehicle should be sold at a retail outlet to ensure a commercially reasonable sale. Ford Motor Credit Co. v. Jackson, 126 Ill. App. 3d 124, (3d Dist. 1984).

Note: Effective January 1, 2024, if a licensed repossession agency believes that a vehicle used as collateral contains personal information, it must remove that information using an approved electronic method before releasing the vehicle. Personal information means any data linked to the vehicle's owner, driver, or passenger, collected and stored by the vehicle. It includes biometric data, contact information, addresses, phone numbers, digital subscriptions, and more.