My car has been repossessed; now what?
Repossession by the bank is like the eleventh hour. It is the final chapter of a novel. There is not much you can do now.
After the bank takes possession and control of the mortgaged car, your options as the borrower mortgagor are any of the following:
1) Pay the full amount due to the bank;
2) Restructure your loan or negotiate a new loan with the bank;
3) Secure a new loan from a third party to pay the full amount due to the bank;
4) Buy your car at the foreclosure sale or from the repossessed car lot of the bank; and/or,
5) Negotiate with the bank to reduce or remove a claim for you to pay the bank any deficiency after the foreclosure sale.
When you or the third party pays the bank, or you restructure your loan, the bank will return the mortgaged car to you.
In case you still don’t know the cause for the default and your car was repossessed, verify with the bank the factual basis for repossession. It may be because of non-payment of one or more amortizations, or your failure to provide proof of insurance coverage covering the mortgaged car.
As a rule, the bank wants to collect from you for the loan. The bank or its collecting agency will take all steps to collect the loan before repossession and foreclosure. At the risk of “harassing” you, the bank will issue to you a series of demand letters and notices by registered mail, email, text and call before the bank exercises its right to repossess your mortgaged car. But, you must keep in mind that there is no harassment when the bank is simply exercising its contractual rights.
After repossession of your mortgaged car, the bank will eventually sell the car at a public auction and apply the proceeds as payment for the loan, interest, penalties, and charges.
The procedure for the mortgagee bank to repossess a mortgaged car is governed by the promissory note and the chattel mortgage entered into by the bank and car buyer / owner. The procedure is primarily governed by the Chattel Mortgage Law (Act No. 1508).
Read the fine print of the terms and conditions in the signed copy of the Promissory Note and Chattel Mortgage. The bank agrees to lend the car buyer the financed amount, and the car buyer agrees to pay the bank the financed amount on an installment basis with interest for a term ranging from 1 to 5 years.
To guarantee payment of the loan, the car buyer will mortgage the car in favor of the bank.
In the event of a failure to pay or a breach of the contract, the bank can foreclose and take possession of the mortgaged car. The bank will then sell the car at a public auction and apply the proceeds as payment for the loan.
The typical Promissory Note with Chattel Mortgage will provide: “If the borrower fails to pay on a due date any installment, interest, penalty or amount payable, or is in breach or fails to perform any of his obligations in the Promissory Note and Chattel Mortgage, the bank may declare the borrower in default of the contract, foreclose on the mortgage, and repossess the car. The bank may bid at the auction sale under judicial or extrajudicial proceedings.”
The bank may resort to either – an extrajudicial foreclosure as provided under the Chattel Mortgage Law (Act No. 1508); or, a judicial foreclosure of the chattel mortgage. An extrajudicial foreclosure of mortgage is premised on the voluntary surrender of the car by the owner to the bank. On the other hand, a judicial foreclosure is premised on the refusal of the owner to turn over the car to the bank.
The bank takes it all. Repossession is costly for the borrower because all the payments to the bank for the downpayment and amortizations, plus the mortgaged car are taken by the bank. In addition, there is a risk of the bank wanting you to pay any deficiency after the foreclosure sale.
Protect your credit standing. If you default on your car loan and the bank repossesses your mortgaged car, you can expect difficulty in securing a loan from the banking system in the future for another car loan, a house loan, a business loan, or even a simple credit card.
The key issue for you is, what is the most cost effective option? Do you have the income or revenue stream to continue paying the amortizations to the bank? Plus, the cost to keep using the car, such as the interest on the loan, annual registration, insurance premium, maintenance costs, parking lot charges, toll fees, and fuel. Is it cheaper to forfeit payments to the bank and the car and avoid further amortizations, interest and expenses of car ownership?
Can you borrow funds from informal sources (read: parents, grandparents, godparents, uncles, aunts, friends and the like) under easier repayment schedule and less (or zero) interest? After negotiating a reduction in interest and charges, use the funds borrowed from your parents and pay off the bank. Then, immediately sell the car even at a price below market value and repay your informal source of funds. Under such a scheme, you will hopefully cut your losses and still keep a good credit standing.