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The Best Ways to Handle a Strict Foreclosure

Recently, a lienholder reached out to TIADA to better understand what they referred to as the “20-day letter.” The 20-day letter is a method of doing strict foreclosure. Strict foreclosure is an agreement to accept collateral in full satisfaction of the debt. It can be done through either a voluntary repossession form or inaction by the debtor, as occurs in the 20-day letter.

Voluntary Agreement

A voluntary agreement between the debtor and the creditor to do strict foreclosure is the fastest and easiest way to achieve strict foreclosure because it eliminates many procedural steps that would otherwise have to be taken. A good time to get one of these waivers signed is after a repossession, when the customer comes to pick up their possessions or at the return of the vehicle in instances of a voluntary return. A good approach is simply to say to a customer, "Let's sign an agreement so you can walk away from this situation without any lingering effects." The other thing is that it must be signed after default. In other words, you cannot get one of these signed at closing and pull it out of the file after repossessing the car.

Voluntary repossession is beneficial to both parties. A benefit of a voluntarily signed waiver for the debtor is that it eliminates any deficiency. You must forgive any debt that remains after the repossession and report a zero balance to the credit bureaus because the balance has been forgiven. You want to be careful because sometimes your DMS will automatically pick up a balance and send it to the credit bureau. The federal government has taken some actions against dealers reporting balances after strict foreclosure. Please make sure that your credit reporting reflects what has actually transpired.

What are some benefits to you of getting a voluntarily signed waiver from your customer after a default or repossession? Well, one is that you can immediately resale the vehicle. Another is that no accounting must be made to the debtor related to the sale of the vehicle. There are no surplus or deficiency notices that you are required if you get the signed waiver. You don't have to worry about the expense of sending out a notice by certified mail return receipt because the signed waiver replaces the notice.

Another benefit to getting a voluntarily signed waiver is that some of the forms have language that creates a release of any future liability on the part of the creditors. So, having that document signed and eliminating the notices and the other post-repossession procedures also creates a release from liability that can possibly be used in the future. Another benefit is that the 60% rule does not apply to a signed waiver but to strict foreclosure through debtor inaction.

Strict Foreclosure through Debtor Inaction

If you cannot get a voluntarily signed waiver for any reason, then you may choose the option of what dealers often refer to as a 20-day letter. The letter should be sent certified mail return receipt requested to all debtors listed on the contract and any guarantors. The form proposes accepting the collateral in exchange for the lender considering the debt fully satisfied. If the debtor fails to object to strict foreclosure, in 20 days, the ownership reverts back to the dealer in exchange for the dealer agreeing to satisfy the debt fully. If the debtor does object, you must dispose of the collateral through a private sale.

Comments

 
By: Jeff Atchison
On: 07/07/2022 16:03:47
There is a 60 percent rule that would kick in on the debtor inaction side that I believe has to be addressed that is not referenced in this article.
 
By: Earl Cooke
On: 07/11/2022 13:23:28
You are correct that the 60 percent rule is important in a debtor inaction strict foreclosure. Also, keep in mind it is something you want to specifically waive when applicable in the voluntary repossession form. Having said that, this article due to its format as a short blog just covers the two types of strict foreclosure and does not go into the nuances of strict foreclosure. There are numerous other nuances one should consider before using strict foreclosure. For dealers looking for a more complete understanding of repossession and when you can use strict foreclosure, we recommend Texas Automobile Repossession: A Lien Holder’s Legal Guide or our on-demand course
ttps://www.txiada.org/content.asp?admin=Y&contentid=272]Repossession 101: What You Need to Know.

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