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Repo Vehicles Are Backing Up With No Titles

Suspicious Activity in the Towing Business
If you are in the towing or vehicle recovery business, you may be noticing something going on with lien holders and lenders that might be suspicious. What’s happening is you may be getting contracts to repo vehicles from borrowers that are delinquent or to store vehicles for vehicles that have been recovered. Then the lien holder either doesn’t pay for the tow or recovery or even really want you to send the vehicle to them or to an auction.

The Real Motive of Lenders
The reason why is because there are some vehicle lenders who are only looking to get the asset out of the hands of the borrower. They don’t necessarily want the asset back; they don’t necessarily want to have the car in their possession. And you might think, well, if they’re repossessing the vehicle, why don’t they want it back? Well, let’s look a little bit farther backwards at some history. There are many vehicle borrowers who have stopped paying for a vehicle, delinquent on their loan, who have contacted the lender and have told them, “Look, just come get the vehicle. I don’t want it taking up space in my driveway. I don’t want to have anything to do with it.” And the lien holder or the lender tells them, “We don’t want it. We don’t want the car, but we’re not giving you a title. We’re not clearing the loan. We just don’t want the car.”

Borrower’s Dilemma and the Impact on Recovery Firms
Well, now the borrower’s in a bad spot because they have a car that maybe is not running, maybe it’s inoperable, maybe it’s damaged, or maybe it’s just not really that desirable to have as a vehicle, and it’s taking up space. If you are an automotive recovery firm, a towing firm, a repossession company, you may be thinking, “Well, this sounds very familiar. I’ve repossessed ten vehicles for this bank, and they’re sitting on my lawn. I’ve asked the bank, where do you want me to bring them? Do you want me to bring them to an auction? Do you want me to send them to you? Do you want me to bring them back to the borrower?” No. “Okay, well then send me my fee for towing the vehicle while it’s still in repossession.” They’ll give you excuses. Maybe the company that actually brokered the recovery is out of business. Sometimes it wasn’t directly from the lender; it was from a freight brokerage company.

Lenders’ Business Strategy
Maybe you’re a storage location for automobiles that have had vehicles delivered to you by a towing company for a bank, and it’s taking up space, and you’ve got to make that space available for further vehicles. Well, here’s what’s going on behind the scenes, possibly, not every case, but possibly. The lien holder is not in the car business. They’re not looking to buy and sell cars; they don’t want cars back. They’re in the money business. They want to collect payments and money from the borrower. If the borrower has the vehicle taken away from them, there’s a very short window of time—15 to 20 days, sometimes 30 days—where that repossession is an incentive for the borrower to make good on the payments, to get caught up on the payments.

Economic Realities of Repossession
If the borrower doesn’t make good within 30 days, the lender knows from experience that the borrower doesn’t care about the car. The leverage of yanking the car away from the borrower is not going to make them pay more. Sometimes the borrower just doesn’t care about the car. They figure, “Well, once it’s gone, I’ll get something else,” or they just don’t want to deal with it. Lenders have learned over the years that a high percentage of vehicles that are repossessed are not worth in value the dollar amount it will take to process the recovery.

Costs Involved in Repossession
Meaning, pay the repo company their fee, pay the storage, pay the shipping to the auction, pay the fees for refurbishing the vehicle for the auction, cleaning it up, detailing it, making it run right, paying the auction fees, and then selling it at a discounted rate because auctions are wholesale transactions. So, for example, it may be a vehicle that has a book value of three thousand dollars, but at wholesale auction, it’s gonna sell for a thousand. Well, you might have a two hundred dollar fee for the repo company, a two hundred dollar fee for storage, 200 for shipping to the auction, 200 in auction fees, and 100 reconditioning. Well, now you have 11-1200 worth of fees, and you’re only going to get a thousand for the car. So, why not just pay no fees and let the car be somebody else’s problem? That’s the mentality of the lender.

The Condition of Repossessed Vehicles
Now, that’s assuming the car is even running or driving. Many of the vehicles that are delinquent on payments with a borrower, the reason for the payment being delinquent is because the vehicle is inoperable. It has a blown transmission, the engine’s no good, it was involved in an accident, and it’s crashed; it can’t be driven. Now, that’s not the case all of the time, but it might be 20-30 percent of the time the vehicle is inoperable. Well, how will the lender know? The lender doesn’t know that, but if you factor that into the percentages, they say, “Well, if thirty percent of the cars are going to be worth zero and seventy percent of the cars are going to be worth a thousand and it’s going to cost us a thousand dollars a car to pay the fees, then let’s not bother getting the cars back. Let’s just use the repossession as a lever, as a threat, to try to get money. If it doesn’t work, then we just won’t pay anything. The repo company, they’re out of luck. The towing company, they’re out of luck. We’ll just let them deal with it.”

Financial Impact on Recovery Companies
Now, where does that put you as a repossession company, a towing company, as far as your finances? Well, you’re not getting paid by the repo by the lending company. The borrower really has no obligation to pay you anything. If they’re not going to pay the payments on the car loan, they’re not going to pay you any fees. Well, what about you getting a title? Well, that’s tricky. In every state, there are certain requirements or certain procedures for automotive businesses to do a mechanics lien or a towing lien or other types of processes to get a title for the vehicle to sell it to recover your losses. The problem is that the towing lien process or mechanics lien process has a lot of hoops to jump through, and more importantly, it doesn’t work every time.

Challenges with Lien Processes
Even if you do all the paperwork right and you do all the processes as described by the state statutes, they can get rejected for many reasons. So you might be in the same boat as a lender. You try to do a towing lien and you spend all the time and effort and labor and cost to do that and then find out half of them don’t get approved because of a procedural error, timing error. Sometimes if it’s not done within 30 days of when the loan was delinquent, it doesn’t qualify. So they’re going to look at when the original repossession was issued. It might have been a year ago. Too bad, you’re out of luck. And every state’s different. There are some states that have actually eliminated towing liens from being qualified to get titles because of a high fraud rate of using these liens.

Possible Solutions
So, to make a long story short, if you are a towing company or a recovery company and you have vehicles that are backed up on your lot that the lien holder is saying, “We don’t want them back,” and you want to try to dispose of them, you have three options. One option is you can make the lender, they’re not going to pay you, they’ve already said they’re not paying you, don’t try to beat that dead horse. You can make the lender give you the proper repossession delinquent title transfer forms. It’s unlikely they’re going to do it voluntarily, but what you might be able to do is if you prepare all the forms that the lender would have to submit to the DMV to process a repossession title and just have them sign them, right? The lender is probably not going to go through the trouble to process all those forms, but if you prepare all the forms, you get all the documents’ i’s dotted and t’s crossed and just provide them to the lender just for one thing, their signature. That’s it. You might be able to do that.

Mechanics Lien and Towing Lien Processes
Number two is you could process a mechanics lien or a towing lien. Same thing, fill out a bunch of forms, go through all the steps. It takes about 90 days to six months, depending on your state, to do all the notices, all the newspaper publication requirements, the auction requirements, and 50 percent of the time you’ll end up with a title. Fifty percent of the time you will end up with nothing, but you could try and see, maybe you get half of them, that could be worth it.

Disposal Option
The third option is to simply dispose of the vehicle, to have a salvage yard, junkyard, towing company just come get the car and get rid of it. You’re not going to get any money, but you also are not going to be out any money for filing mechanics lien or your labor for trying to get a repossession title. Now, option number one might sound like a good option. Well, just have the lender give me paperwork, a lien release, or a foreclosure repossession notice.

Legal Implications for Lenders
The problem is some lenders are very hesitant to do that because repossessing a vehicle is one legal threshold. It’s, well, you didn’t pay your bills, we are taking your vehicle. Okay, fair enough. Changing the ownership of that vehicle is a whole different story. Once you change the title from your borrower to somebody else, now you’re doing something that might have a higher legal threshold, and if a lender does that without the proper authorization or if it could be contested by the borrower, they can get sued. So sometimes they’re just as comfortable repossessing the vehicle, getting it out of the hands of the borrower, but not actually following through on the formal title transfer because that could put them in hot water. And letting it sit like that, they’re not letting the borrower get away with a free car, but they’re also not taking the car ownership away from the borrower, kind of like a legal limbo of a vehicle.

Towing Company’s Predicament
If you are a towing company or storage company with ten cars on your lot, the legal limbo is creating a problem for you because it’s taking up space, and more likely you are out money because you performed a service for the lender that’s not paid for and is never going to get paid for. You can try to do mechanics lien and towing lien, there’s no harm in trying, just understanding that they don’t all work. You would think that, well, it should work because I towed the vehicle and I have rights. Well, guess what, the statutes of your state may be a little bit more restrictive than that. Most states have statutes that protect the borrower and the owner from just having a vehicle title snatched away from them without proper paperwork and without the loan paperwork being certified as delinquent and going through the legal channels. Simply just towing it might not be sufficient. There may be a way to do it, but there’s also, like we said, many protections in the law about how long you have to do it. You can’t wait too long, but you can’t do it too soon. If you don’t send out the right notices, it’s void.

Legal Advice and Risks
If you are a towing company also, if you’re going to do a mechanics lien, get good legal advice. Because if you do a mechanics lien or a towing lien on a vehicle that is a repossession and you end up getting a title switched to you or your buyer, the borrower is going to get a notice of that title transfer, and they can contest it. They could say, “No, I never authorized a tow, I never brought it in for service or repairs.” And if you checked off the wrong box on that application for a mechanics lien and said, “We’re a mechanic and we fixed the vehicle,” or “We towed the vehicle on behalf of the owner,” technically that may not be the correct statement of facts. Your facts are you were hired by a repo company to repossess a vehicle. That may not fit under the standards of a mechanic’s lien. It might in your state, but make sure you get good legal advice because what you don’t want to do is take an old sled 500 dollar car you’re just trying to get your money back for and turn it into a 10,000 dollar lawsuit against your business and have the consumer protection agency or the attorney general of your state clamping down on you because you just checked off the wrong box trying to recover three or four hundred dollars for a towing fee.

Regulatory Complexities
There are many, many federal statutes for fair credit reporting and consumer protection on auto loans to protect people from losing their rights in a vehicle just because they didn’t pay a loan payment. You might be accidentally stepping your foot into the middle of a hornet’s nest of huge consumer protection lending laws just because you towed a vehicle and are trying to get a title. So before you get into all this, make sure you get good legal advice from an attorney that knows what they’re talking about. If you want to file paperwork and do mechanics liens, that’s great, that may be a good option to go. But also remember, mechanics lien isn’t as simple as just filing one form. It’s a process over the course of two to three months of notifications, publications, auctions. It’s very tricky. We do them all the time. We know how hard they are. So you want to make sure you know what you’re getting into also with the mechanics lien so that you know, first of all, how hard it is, but also if it is a repossession that you might be unintentionally wrapping yourself up into a large-scale federal consumer protection finance industry regulations, and there’s a lot of regulations that go into that. That’s why the bank may not want to be getting the car back and getting a title because they don’t really care about repossessing the car, taking it from somebody. But once they start messing around with title, now you might be opening up a can of worms for regulation, oversight, and enforcement.

Practical Recommendations
So think about if the bank is hesitant on getting the car back and doing a title, the bank might know something you don’t as a towing company. So be very careful about that. In the meantime, what do you do as a towing company? What we recommend if you are a towing company that’s doing recovery or repossession for a lender or for a broker of a lender, that you get paid in advance or get a retainer for your work. Because we talk to hundreds of automotive industries every week, and they’re telling us all the time that the lenders aren’t paying. And the way they’re hiding behind it is they’re hiring a third-party brokerage company or a management company or a recovery efficiency company who hires you. You’re not hired directly by the lender. You’re hired by some broker or middleman, and they make a fee no matter what, and then they leave you holding the bag with the vehicle without a title and without payment because they don’t pay you. That’s the way they make money.

Financial Health of Towing Companies
So just be aware of what’s going on in the recovery industry and how that might affect your profit, loss statement, your balance sheet, your bottom line. And if you’re a towing company, it might be, you know, might be scary to say, “Well, either pay in advance or we’re not towing anymore for you,” because a lot of lenders are just going to say, “Fine, we won’t send any more business.” But if you’re not getting paid anyway, you’re better off not doing free work than just doing no work. What’s cheaper, having your tow truck sit there and do nothing and get paid nothing or have it spend six gallons worth of diesel fuel and four hours of labor for your employee and get paid nothing, right? How many paid recoveries does it take to make up for one non-paid recovery? A lot. It probably takes five or six or eight paid recoveries to make up for one defaulted payment from one client. By the time you look at how much profit you actually make off of one paid recovery, it might take seven or eight of those to come up with the losses you take on one person that stiffs you on the payment. And that goes for every industry. Make sure you’re not doing business for people that are likely going to stick you on payment or default on their contract.

The recovery and towing industry has this going on with lenders. Be aware of it as an automotive recovery expert, towing expert, so that you don’t end up with 15 cars clogging up your lot, thousands of dollars in unpaid invoices, and nowhere to go to try to solve it other than the temptation to do something that might get you into legal hot water.

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