Recent Entries

Breaching of the Peace

By Amy Holbrook, Partner

If you turn on your television any given day of the week and do a little channel surfing, you’re bound to catch of few minutes a “reality” television show about repossessions. Let’s be honest, these shows do offer some entertainment. There are crazy, angry people hiding in high-end vehicles, people destroying collateral to prevent recoveries and stealthy repo men hiding behind shrubs. Those of us in the industry, however, understand how misleading this entertainment can be.

The climate of our industry requires a stricter adherence to compliance standards than it ever has before, making a regular review of repossession policies and standards a good practice.  Most states allow for secured creditors to repossess their collateral but only so long as there is no “breach of the peace”. So what constitutes a breach of the peace? There is no list that provides for every possible scenario, but listed below are multiple behaviors that may be considered breaching the peace.

  • Threats or Acts of Violence
  • Trespass
  • Taking the wrong collateral
  • Damaging Property
  • Doing anything that might incite violence in another
  • Breaking Locks or Windows
  • Arguing, Yelling or Acts of Aggression

ECOA and the CFPB

The Consumer Financial Protection Bureau issued guidelines for how indirect auto lenders can avoid violating the Equal Credit Opportunity Act (“ECOA”).  In recent months, the Consumer Financial Protection Bureau has focused on auto lenders potential violations of the Equal Credit Opportunity Act (ECOA).

The ECOA prohibits lenders from discriminating against borrowers based on specific protected classes which include race, color religion, national origin, sex, marital status or age.

The CFPB is primarily concerned with situations where the dealer charges additional interest or a reserve.  The concern is that members of protected classes may be charged higher rates for their loans, which may violate ECOA.

While some indirect lenders may claim that they are not liable under the ECOA because they are not originating the credit or directly accepting the application, the CFPB had indicated that they would still be liable if they make a credit decision (such as offering a rate or agreeing to buy a loan at a set rate) or if they know that the car dealer is violating the ECOA.

Although the CFPB has been focusing on indirect auto lenders for ECOA violations, they offered tips for indirect auto lenders which include:

  • Imposing controls on dealer markup, or otherwise revising dealer markup policies;
  • Monitoring and addressing the effects of markup policies as part of a robust fair lending compliance program; and
  • Eliminating dealer discretion to markup buy rates, and fairly compensating dealers using   a different mechanism that does not result in discrimination, such as flat fees per transaction.  (See CFPB Bulletin March 21, 2013).

Indirect auto lenders are facing stricter scrutiny under the CFPB.  They should develop or revise their programs to ensure that the dealers they work with are not engaging in discriminatory practices.  Auto lenders will need to make sure they have a well-developed program and continued monitoring of its dealers.    In this age of heightened scrutiny, the best defense may be a good offense.

Sixth Circuit BAP Ruling Raises Important Issue Regarding Lien Perfection

In an opinion released June 1, 2012, the Bankruptcy Appellate Panel of the Sixth Circuit upheld a Kentucky Chapter 7 bankruptcy trustee’s successful motion to avoid the lien of a creditor on a mobile home. (In Re: Pierce, 11-8065). Notably, the creditor’s lien was both a purchase money security interest AND notated on the certificate of title to the home. The trustee asserted that the creditor failed to properly perfect its security interest by not applying for the title in the county of the debtor’s residence.

The pertinent Kentucky statutes allow for a “first” title issued upon sale of a mobile home or vehicle to be issued by the clerk of either the county where the debtor resides or the county of the dealer’s principal place of business is located. KRS 186A.120.   The Court held, however, that a subsequent section of the same statute requires the clerk in the debtor’s residence county to notate the lien upon the title before issuance, which was not done in this case. Rather, the dealer’s county clerk issued the title with the lien notation. KRS 186A.120 (2)(b)  Accordingly, the Court upheld the bankruptcy court’s order stripping the creditor of their lien and allowed the trustee to sell the mobile home, leaving the creditor without any collateral securing its underlying obligation.

This case drives home a very important point when perfecting a security interest in titled collateral. While being notated on the title is a generally a good indicator of proper perfection, this is not always the case.  If there is even the slightest question as to whether your security interest has been properly perfected, contact your attorney for advice on how to navigate the procedural intricacies of the state and county titling offices.

Indiana Appeals Court Reconciles Statutes to Limit Storage Lien Stemming From Police Impoundment

Storage liens in Indiana are governed by a combination of statutes and case law.  In Northwest Towing v. State, 919 N.E.2d 601 (Ind.Ct.App. 2010), the Indiana Court of Appeals reconciled two of those statutes in the context of storage fees stemming from a police impoundment.  This ruling should provide some guidance to vehicle owners, creditors, and garagemen who must determine if a storage lien is capped at $1,500.

Steven Brinkley was involved in a car accident in Muncie and was charged with leaving the scene.  He was driving a vehicle owned by his mother, Frances.  Following the accident, the Muncie Police Department requested that the vehicle be towed to Northwest Towing.  After the criminal case concluded, Frances moved to have the vehicle returned to her, and Northwest Towing responded by claiming a storage lien in excess of $3,600. The trial court ordered the return of the vehicle to Frances, but ordered Frances to pay storage fees. The Court limited Frances’ liability for storage charges to $1,500.

In affirming the trial court’s decision, the Court of Appeals examined two statutes.  I.C. 9-22-5-15, enacted in 1991, grants a lien to a garage that repairs or stores a vehicle at the request of the owner, with no maximum limit on the amount of fees the garage can charge.  I.C. 32-33-10-5, passed in 2002, grants a lien to a garage that repairs or stores a vehicle, but does not specify that it must be at the request of the owner.  Additionally, I.C. 32-33-10-5(b), a 2005 amendment, establishes a $1,500 limit on storage fees.  Here, since the storage was not requested by the vehicle’s owner, the court found that I.C. 9-22-5-15 did not apply.  Therefore, I.C. 32-33-10-5 and its $1,500 storage fee limit applied.

Under the Northwest Towing decision, if a non-owner requests the initial storage, the storage lien is limited to $1,500.  This would apply in the context of a police impoundment or a traditional repair situation.

At Your Service – Part Three

The following is a continuation of the interview that I had with our process server, Joe, regarding the subject of process service [see Parts One and Two of the interview, posted July 5, 2011 and September 20, 2011 respectively].  The items covered in this portion address some of the “ups, downs and run arounds” in the field.

What is the biggest obstacle in attempting to serve summons/Writ of possession on a party?

For the most part, a bad address and getting the party to open their door.  Approaching a residence with an open front door is my best case scenario…a closed door with a party in the house usually means there will be resistance in getting them to open the door.  The current economical times also create a problem inasmuch as individuals are getting smarter at avoiding service and have become numb to the process.

Is there a trick to getting people to answer the door?

I find that using an informal approach works best.  In today’s world there is a higher level of fear for people insofar as answering the door to their home.  It’s been helpful to me to use a friendly attitude from the moment I enter the party’s neighborhood.  Quite often there are neighbors outside, the local postal carrier, home improvement workers…the more I look like I belong there too, the better success that I have.  Without disclosing the nature of my presence, encountering people in the neighborhood also provides me with an opportunity to talk to them and get a feel for the type of individual that I am about to approach as well as get an idea of whether or not the collateral has been seen in the area.  Neighbors talk to each other, so quite often they will convey a message to the party to be served that I am not to be feared.

How do you handle service of a party in a large apartment complex where access may be an issue due to security policies, or, at an employment location?

Making contact with a Security guard and developing a good rapport with them provides for the best advantage in breaking down any barrier or gaining useful information about the party’s existence in the building.  It has also been my experience to just wait around and gain entry by “piggy backing” off another entering party.  Generally, my approach will be dependant on whether or not the party is listed on the directory.  If they are not, then I will speak with the leasing office to determine if further effort is beneficial.  Insofar as employment locations, it gets tricky, because not all employers will allow access to it’s employees, so that’s pretty cut and dry.  Smaller employers are not a problem.  If I sense that an employer is covering for the party, persistence and respect are my best tools for gaining access to the party.

What if the individual being served refuses to accept the summons?

Nothing can be done and other methods of service [certified mail, etc.] are initiated by the attorney handling the case.

What is the typical response from someone who has received a summons?

Ninety five percent of the individuals acknowledge that they knew the summons was coming.  Many of the individuals are actually repeat offenders and known to me from previous service attempts, so they greet me as a person familiar to them.

I did have an occasion where an individual actually called me to thank me for treating him with respect and dignity at a difficult time in his life…he had my contact information that I had previously left with a neighbor.  When I finally served him, he told me that he was getting cancer treatments and wondered if he could have additional time to resolve the matter and I assisted in getting him the information he needed to contact the party who initiated the matter pending against him.