A Guide to Repossession

When the
Repo Man comes
A guide to
Repossession
Written by Ian Macdonald
1
When the Repo Man comes
A guide to Repossession
IS PUBLISHED FOR THE FINANCIAL COUNSELLORS
RESOURCE PROJECT OF WESTERN AUSTRALIA INC. 2011
© 2011 Text Ian Macdonald
In this book the term ‘Financial Counsellors Resource Project’ refers to
the Financial Counsellors Resource Project of Western Australia Inc. This
publication is prepared for the purpose of providing general information,
and is based upon legislation current at the time of publication in Western
Australia. No person should rely upon it for legal advice for a specific
situation, but should seek advice from a qualified professional person. The
author, artist and publisher are not responsible for the results of any actions
taken on the basis of information in this publication, nor for any error in
or omission from this publication, and are not engaged in rendering legal,
accounting, professional or other advice or services.
2
These materials are copyright. Apart from any fair dealing for the purposes
of private study, research or as permitted under the Copyright Act, no part
may be reproduced or copied in any form or by any means without prior
permission. Copyright in the text is owned jointly by the Financial Counsellors
Resource Project and Ian Macdonald.
Captain Denmark Publications 2011 - P.O. Box 784, Mount Lawley WA 6929
Fifth Edition
This booklet relates to repossession of goods by a lender under a credit
contract to which the uniform Consumer Credit Code or the National
Credit Code apply. Repossession under both Codes is now regulated by the
National Credit Code. This is referred to in this booklet as ‘the Credit Code’.
Expressions such as ‘(s. 42)’ refer to sections of the National Credit Code.
Regulations and Forms referred to are in the National Consumer Credit
Protection Regulations 2010. The National Credit Code is Schedule 1 to the
National Consumer Credit Protection Act 2009.
2
What is Repossession?
Repossession occurs when a lender takes back goods such as
a motor vehicle when money has not been paid under a credit
contract. Repossession can only take place if:
Mortgage
There is a mortgage on the goods. A mortgage is a power to
take back goods or land if the borrower fails to make payments
relating to that contract. A mortgage under the Credit Code
must be in writing, and signed by the borrower. In most cases
the mortgage will be part of the credit contract: (s. 42).
Default
Repossession can only take place if the borrower is in default
under the contract.
Default Notice
Repossession can only take place if the lender has given to
the borrower a valid default notice which gives the borrower
at least 30 days to fix up the default, and the borrower has
not fixed up the default in that time: (s.88 (1)).
3
Checklist For A Default Notice
To be valid, a default notice must:
1. Have a big heading saying that it is a default notice:
and
2. Specify the default;
3. Specify the action the borrower must take to fix up the
default;
4. Specify the period for fixing up the default;
5. Specify the date after which enforcement proceedings
and repossession of mortgaged property may begin, if
the default is not fixed up;
6. Say that repossession and sale of the mortgaged property
may not extinguish the borrower’s liability under the
mortgage – (that is, there may be a shortfall left);
7. Give the information required by Regulation 86 and Form
12 (2) about the borrower’s rights to make a hardship
application (s. 72), negotiate a postponement (s. 94),
and to make an application to a court relating to these
possibilities;
8. Give the information required by Regulation 86 and Form
12 about the external dispute resolution (EDR) scheme
of which the lender is a member, and borrower’s rights
under the EDR scheme, and contact details for the
scheme;
9. Say that if another default of the same type occurs within
the period of time that the borrower has to fix up the first
default, the lender can take enforcement action without
further notice.
10. Say that the debt may be included in the borrower’s
credit information file if the debt is overdue for 60 days
or more and the lender has taken steps to recover the
debt;
4
4
11. Say that the borrower is entitled to receive a reply within
21 days and can complain to ASIC on 1300 300 630 if
the lender fails to do this, and
12. Tell the borrower they may wish to get legal advice from
a community legal centre or legal aid, and advise there
are other people such as financial counsellors who may
be able to help: Regulation 86 and Form 12.
There are some exceptions to these rules. A
Repossession notice need NOT be served before
action if:
• There has been fraud on the part of the borrower.
• The lender cannot find the borrower.
• The borrower has hidden or disposed of the goods, or
plans to do this.
• A court has made an order saying the lender can take the
goods (s.88 (5)).
The 25% Rule
Unless a court gives specific permission, the lender cannot
go ahead with a repossession if less than 25% of the amount
borrowed is still owing, or $10,000, whichever is the lesser.
It is important to note that this test refers to the amount that
was borrowed, rather than the total amount to be repaid,
which includes interest.
This test also does not apply if the borrower has removed
or disposed of the goods, or plans to do so.
5
Entering Residential
Property For Repossession
Residential property is a house or other place where someone
lives, and the yard around it.
Lenders, and repossession agents acting for lenders, cannot
enter residential property to repossess goods unless:
The person occupying the residential premises has received
written notice of the provisions of the Credit Code about this
AND has given written consent to the person who is trying to
repossess goods coming into their residential property.
OR
A court has made an order that the lender or a repossession
agent acting on the lender’s behalf can enter upon residential
property to repossess certain goods, such as a vehicle, that is
secured under the finance contract: (ss. 99 and 100).
6
Stopping Repossessions
• A borrower who has a reasonable prospect of getting a
finance contract back on track can set about stopping
repossession in several ways.
• The borrower can write to the lender and make a proposal
that repossession be postponed while they negotiate a
change to the credit contract (ss. 94 and 72). The lender
must reply within 21 days (s. 72 (3)).
• If the lender’s reply is unhelpful, the borrower can ask the
lender to reconsider (Internal Dispute Resolution).
• If this does not produce a satisfactory response from
the lender, the borrower can go to the external dispute
resolution scheme to which the lender belongs. In most
cases this is the Financial Ombudsman Service (FOS).
• If time is pressing, and repossession may take place before
the borrower goes through these steps, the borrower can
lodge a dispute with FOS. This will prevent the lender
repossessing the goods until the borrower’s application to
change the contract is dealt with properly.
• If the lender seems unwilling to act in accordance with its
obligations, the borrower can complain to the Australian
Securities and Investment Commission (ASIC).
• Contact details for these organizations are set out at the
end of this booklet.
• The borrower can also apply to a court to change the
contract, and to stay repossession while the borrower’s
application is considered (s. 74).
7
Hardship Variation of Finance Contracts
If people with credit contracts run into trouble with ill-health,
or being out of work or something else like family break-up,
and they cannot keep up with the payments, they should get
advice about changing the contract. If they could manage
the payments if they were reduced, and the contract ran
over a longer period of time, the contract may be changed to
allow that to happen. Perhaps people may need to have the
payments stopped for a time, like three months, due to being
out of work, or ill-health.
A borrower for whom it may be appropriate to change the
credit contract in this way can follow the steps set out in the
previous section under the heading ‘Stopping Repossessions’.
8
“Looks like I’m going to lose the
truck. I’ve broken my ankle, and
I’ll be off work for three months.
I won’t be able to keep up the
payments.”
“You want to go and see that
financial counsellor in town. I saw
her when the meat works shut
down and she got the payments
stopped on the Landcruiser until
I got back to work.”
In The Financial Counsellor’s Office
“I’ll write to the finance
company, tell them you’ll
be off work for three
months, and get them to
stop the payments.”
“What if the finance
company says no?
“Then we will write
to FOS and ask them
to step in”.
9
After a Repossession
If a repossession does occur, the lender has to do certain
things.
Notice After Repossession
A lender which has repossessed goods has to give the
borrower within 14 days after the repossession a written
notice setting out:
1. The lender’s estimate of the value of the goods that have
been repossessed.
2. The expenses incurred by the lender in repossessing
the goods, and other expenses it reasonably incurs in
enforcing its rights against the borrower.
3. A statement of the borrower’s rights and obligations in a
form laid down in Regulation 88 and Form 14 (s. 102 (1)).
21 Day Stay
A lender which has repossessed goods is not allowed to dispose
of them, or sell them, until 21 days after the repossession
unless a court authorizes the lender to do so. This gives the
10
borrower an opportunity to get money together to get the
contract paid up to date, and to pay the lender’s reasonable
expenses relating to the repossession (s. 102 (2)).
Introducing A Cash Purchaser
If the borrower cannot raise the money to get the contract
back on track, it may be the case that the borrower does
know somebody who has enough money to buy the goods at
the price set out in the Notice After Repossession. Sometimes
the borrower may think the value estimated by the lender
is unrealistically low, and can take advantage of that by
introducing a friend or relative to buy at that price.
If the lender gets a written offer to buy the goods at a higher
price, then it can accept that higher price for the repossessed
goods.
It is an offence for a lender to refuse to sell the goods to the
person introduced by the borrower, or another higher bidder
(s. 103).
Best Price Reasonably Obtainable
If goods are repossessed, and the borrower does not get
them back or introduce a cash purchaser, the lender has to
sell the goods:
1. As soon as is reasonably possible.
2. For the best price reasonably obtainable.
This means a retail price. A court in Western Australia has
ruled that the best price reasonably obtainable is the retail
price at which goods are sold to a member of the public by a
dealer, as opposed to the wholesale price which is the price
dealers pay to buy stock, for example at a trade auction.
11
Financial Counsellors
Resource Project
FCRP - 9221 9411
for a referral to a financial counselling service
FCAWA Hotline - 1800 007 007
ASIC Infoline - 1300 300 630
money smart website is www.moneysmart.gov.au
and www.asic.gov.au