Credit sales - repossession

This Topic Includes:
Credit (Repossession) Act 1997
Accessions - goods attached to purchased goods
The six steps to repossession
Step 1
Pre-possession notice
Step 2
Step 3
Post-possession notice
Step 4
Step 5
Step 6

Repossession

If you wish to be able to repossess goods, it must be a term of the credit sales contract, and you must disclose the security interest in the goods to the customer.

Two circumstances may lead to repossessing goods:

1. The customer is in default under the contract.
2. The creditor has reasonable grounds to believe the goods are at risk (have been or will be destroyed, damaged, endangered, disassembled, removed, or concealed contrary to the contract provisions).

The Credit (Repossession) Act only applies to consumer goods – goods that are used primarily for personal, domestic or household purposes.

The rules for repossessing goods that are not used or acquired for use primarily for personal, domestic or household use are provided in Part 9 of the Personal Property Securities Act 1999.

For more information about this Act, contact your lawyer or the Ministry of Economic Development on 0508 777 746. The Personal Property Securities Register is available at www.ppsr.govt.nz.  The legislation is available at www.legislation.govt.nz.

Note: The Credit Contracts and Consumer Finance Act may prohibit enforcement of the right to repossess if the Act has not been complied with. For example, the contract cannot be enforced if you did not make initial disclosure to the customer including any right to take possession of the goods.

Credit (Repossession) Act 1997

The Credit (Repossession) Act only applies where a creditor has reserved the right to repossess consumer goods in its credit sale contract with a debtor. If the contract does not specify the right to repossession, the creditor cannot take possession action unless it has a court order.

Consumer goods are goods used for personal, domestic or household purposes. Whether the goods are consumer goods is determined when the security interest in the goods is created which is usually at the time the contract is made.

If a creditor fails to comply with the Act, the debtor can apply to the Court for relief.

The Act does not apply to consumer leases.

Accessions – goods attached to purchased goods

Goods subject to a security interest are sometimes installed in or attached to other goods (eg, a stereo or a replacement motor installed in a car). These goods (the stereo or replacement motor) are called “accessions”.

Accessions can be repossessed if the security agreement provides for it and the debtor defaults. However, the creditor must remove the accession in a way that causes the least amount of damage and inconvenience to those with an interest in the other goods (ie, the car).

The creditor must also give 10 working days’ notice of the removal to:

• others they know have an interest in the other goods (such as the car owner)
• others who have registered notice of their security interest in the other goods on the Personal Property Securities Register.

The six steps to repossession

All steps must be followed.

Step 1. Pre-possession notice

A pre-possession notice must be served (hand delivered, sent by registered mail or ordinary post) on the debtor and any guarantor. The notice must:

• specify the nature of the default
• require the debtor to remedy the default within a set period (at least 15 days after the notice has been served).

The pre-possession notice does not need to be served if the creditor has reasonable grounds to believe the goods have been or will be destroyed, damaged, endangered, disassembled, removed, or concealed contrary to the contract’s provisions.

Example

• If a customer moves house without telling the creditor their new address, the creditor may have grounds for repossessing without notice.

The creditor cannot take possession of the goods until the period in the pre-possession notice has expired. If they do, they can be fined up to $3,000 and the debtor can be granted relief on terms the Court thinks fit.

Example: Pre-possession notice

See Credit (Repossession) Act 1997, Schedule 1

To: [Full name of debtor] Anthony James D’Van & Tina Marie D’Van
[Address] 24 Sunset Terrace, Nightcap

This is about your [Describe goods] Big Bed Supersoft Queen Bed, which is subject to a security agreement with [Full name of creditor] RestEasy Finance Ltd. The agreement is dated 1 April 2005.

This is to notify you that –

• You are in default under that security agreement; and
• The default consists of [Specify the nature of the default] $246.88 which is the 2 instalments dated 10 June, and 10 July 2005 at $123.44 each.

YOU MUST, within 15 days* after the service of this notice on you, –

• Pay $246.88 to [Name and address to which payment must be made] RestEasy Finance Ltd, PO Box 1 Bedale. That amount is made up as follows:
  [Show how the arrears are made up] 2 instalments dated 10 June, and 10 July 2005 at $123.44 each; ** or
•  ………………..[Describe obligation to be performed]; ** AND
• Remedy other breaches of the agreement by ……………….. [Describe the actions that the debtor must take to remedy the default (in so far as it is capable of being remedied)].

IF YOU DO NOT COMPLY with these requirements within 15 days* after the service of this notice on you, [Full name of creditor] RestEasy Finance LtdINTENDS TO TAKE POSSESSION of the [Describe goods] Big Bed Supersoft Queen Bed.

Dated this 31st day of July 2005

[Creditor’s signature]

This notice is given by [Full name and address of creditor] RestEasy Finance Ltd, PO Box 1 Bedale, as creditor under the security agreement.
* Insert number of days not being less than 15.
** Delete whichever is inapplicable.

NOTE – Where this notice is sent to a guarantor it must be endorsed at the top of the notice as follows –
This notice is sent to you as guarantor of Anthony James D’Van & Tina Marie D’Van
As guarantor you have certain rights and obligations and you should seek advice at once.

Step 2. Goods are repossessed

Goods can be repossessed if the debtor does not pay the arrears within the 15-day period. However, the creditor does not have an automatic right to enter the customer’s property – this must be allowed under the credit sale contract.

Can anybody enter a property on behalf of the creditor?

The creditor must provide their repossession agent with written authority to enter the property, and this must be shown to the debtor. People with previous convictions for crimes such as fraud or theft cannot act as agents.

A creditor or their agent must not enter premises in an unreasonable way and must take reasonable steps to ensure the premises are not left obviously open when they leave.

A repossession agent cannot enter a debtor’s house:

• before 6am or after 9pm on Mondays to Saturdays
• any time on a Sunday
• any time on a public holiday.

The debtor can agree to waive these restrictions after the default but before the agent arrives at the premises.

These rules apply to residential premises only.

What needs to be produced on entry?

On request, the agent must produce copies of the pre-possession notice and the agent’s authority to act on behalf of the creditor.

If the premises’ occupier is absent when the goods are taken, the agent must leave:

• a notice stating the premises have been entered and the date of entry
• an inventory of goods taken
• a copy of the pre-possession notice
• evidence of their authority to take the goods.

If the debtor is at home they can stop the repossession by paying the arrears to the agent. However, the debtor still has to pay the repossession fees, even if the agent does not take the goods away. This may not apply if the creditor has reasonable grounds to believe goods may be at risk.

Step 3. Post-possession notice

Within 21 days of taking possession of the goods, the creditor must serve a post-possession notice on the debtor and every guarantor. If they don’t, they are not entitled to recover the possession costs from the debtor.

In addition, and in the same timeframe, the creditor must give notice to:

• anyone who has registered a financing statement on the Personal Property Securities Register for the goods, which is effective at the time of possession
• anyone else who has given the creditor notice that they claim an interest in the goods.

The creditor does not need to give notice to other creditors if they believe on reasonable grounds that:

• the goods’ value will decline substantially if they are not disposed of immediately
• the cost of care and storage is disproportionately high in relation to the goods’ value
• upon application, a Court is satisfied that a notice is not required.

Creditors can only sell or dispose of goods once 15 days have passed since the post-possession notice was served. This time period does not apply if the debtor agrees in writing to an earlier sale.

If the creditor sells the goods without consent during this period, their right to recover the full debt is removed. The debtor will not have to pay the cost of credit.

Example: Post-possession notice

See Credit (Repossession) Act 1997, Schedule 2

To:[Full name of debtor] Anthony James D’Van & Tina Marie D’Van
[Address] 24 Sunset Terrace, Nightcap

This is about your [Describe goods] Big Bed Supersoft Queen Bed, which is subject to a security agreement with [Full name of creditor] RestEasy Finance Ltd.
The agreement is dated 1 April 2005 .

This is to notify you that –

• The [Describe goods] Big Bed Supersoft Queen Bed was repossessed on [Date] 21 August 2005.
• You will be entitled to get it back if, within 15 days, you EITHER reinstate OR settle the agreement. “Reinstate” means to resume the agreement by paying the arrears of instalments owing (plus costs) and remedying other breaches of the agreement.

“Settle” means to completely pay off [or perform], and finish, the agreement.

• To reinstate the agreement, you must –
• Pay the amount required to reinstate the agreement; and
• Remedy other breaches of the agreement by ……………….. [Describe the actions that the debtor must take to remedy the default (in so far as it is capable of being remedied)].
  
  The creditor’s estimate of the amount you must pay to reinstate the agreement is –
  Arrears of instalments ( including interest and other charges) $ 372.32
  Repossession costs $ 120.00
  Costs of holding, storage, repairs, or maintenance $ -
  Costs of valuing and preparing goods for sale $ 50.00
  Cost of re-delivery $ 65.00
  Costs of remedying breaches of agreement $ -
  Total $ 607.32
  
  
• To settle the agreement, you must –
  • Pay the amount required to settle the agreement; or
  • ……………….. [Describe obligation to be performed].

  The creditor’s estimate of the amount required to settle the agreement is –
  Balance of the amount of advance outstanding,
  (together with interest and charges payable under the agreement) $ $1075.90
  Add costs of valuing and preparing goods for sale $ 50.00
  Add repossession costs $ 120.00
  Add costs of holding, storage, repairs or maintenance $ -
  Add costs of re-delivery $ 65.00
  Add costs of remedying breaches of agreement $ -
  Total $ 1310.90

IF YOU DON’T REINSTATE OR SETTLE THE AGREEMENT –

• The creditor is required to sell the goods:
• You will be liable for the creditor’s loss unless the net proceeds of the sale of the goods is enough to cover your liability:
• You will be entitled to a refund if the net proceeds of the sale of the goods is more than enough to cover your liability.

The creditor’s estimate of the value of the goods repossessed is $1200.00

NOTES

1. You have the right to apply to a Court for relief if a creditor has served a pre-possession notice on you or has taken possession of goods in contravention of the Act. In most cases, the application can be made to a Disputes Tribunal.
   
2. You may, at any time until the creditor sells or agrees to sell the goods, reinstate the agreement or introduce a cash buyer who will pay not less than the creditor's estimate of the value of the goods, i.e., **$1200.00. Within a period of 15 days after service of this notice, the vendor may not dispose of the goods without your written consent.
3. You may, at any time before the creditor sells or agrees to sell the goods, settle the agreement.
4. The creditor is not obliged to sell the goods by public auction or public tender, but if the creditor does, you are entitled to reasonable notice of –
   • The time and place of any proposed offering of the goods for sale by public auction, and of the existence and amount of any reserve price:
   • Any proposed offering of the goods for sale by public tender. This does not apply if the goods are perishable or threaten to decline speedily in value.
5. You are entitled, at any time after the creditor takes possession of the goods but before the creditor sells or agrees to sell the goods, to obtain a valuation of the goods at your expense. The creditor must give you or your valuer access to the goods to enable the valuation to be completed.
6. At any offering of the goods for sale by public auction or public tender, you are entitled to bid or tender for them.
7. If the creditor does not sell the goods within 3 months of taking possession, you may –
   • Apply to the Court for an order directing the sale of the goods; or
   • Require the creditor to put them up for sale by public auction without reserve.
8. Within 10 days after the sale of the goods, whether by auction or otherwise, the creditor is required to give you a statement of account which will show whether you are entitled to a refund or whether you are still indebted to the creditor in respect of the security agreement.
9. If you are entitled to a refund and the creditor does not pay it to you, you must, if you wish to recover it, sue the creditor within 6 months after you are given the statement of account.

DO NOT DELAY

Action to enforce your rights should be taken at once. At the end of 15 DAYS after the service of this notice, the creditor is free to sell the goods, if you have not reinstated or settled the agreement or introduced a cash buyer who will pay not less than the creditor's estimate of the value of the goods.

If you are in doubt about what you should do, you should seek advice at once.

NOTES –
1. Where this notice is sent to a guarantor it must be endorsed at the top of the notice as follows –
This notice is sent to you as guarantor of Anthony James D’Van & Tina Marie D’Van
As guarantor you have certain rights and obligations and you should seek advice at once.
2. If the Court has already made an order relating to the repossession of the goods under section 13 (3) of the Act, then this notice must be amended to delete the rights that the Court has ordered are not to apply.
** Insert creditor's estimate of value.

Step 4. After repossession

The creditor must offer the goods for sale once 15 days have passed from the date the post-possession notice was served on the debtor, unless:

• the debtor reinstates the contract by paying the arrears and the repossession costs and carrying on with the repayments, or
• the debtor finds someone willing to buy the goods for cash (the current value of the goods as in the post-possession notice), or
• the debtor settles the contract by paying the total amount owing, or
• the Court determines otherwise in an order.

Step 5. The goods are sold

If the debtor has not chosen any of the above options when the 15-day post-possession notice expires, the creditor must offer the goods for sale. This can be by auction, tender or private sale. The customer must be told the time and place of the auction or tender before it takes place. The creditor must use reasonable business methods to obtain the best price.

We recommend selling the item as soon as possible, before the goods lose value further. As the debtor is unlikely to be able to repay any amount outstanding after the goods are sold, getting the best price will help recover the debt as early as possible.

If the goods have not been sold three months after the post-possession notice expires, the debtor can either:

• apply to the Court for an order directing the goods to be sold, or
• require the creditor to put the goods up for sale by auction.

Step 6. After the goods have been sold

Within 10 days of the sale date the creditor must give the debtor a written statement of account showing:

• gross proceeds of sale
• the costs and expenses of, and incidental to, the sale
• the amount required to settle the contract
• the balance owing by either the creditor or the debtor.

If there is a shortfall, the creditor can recover that amount.

Example – Statement of account after sale

FROM: Beds and Beds

Branch Address 140-146 Lyon Street, Nightcap
Agreement No. 4700316
Date of Agreement 1/4/2005
Description of Goods Big Bed, Super Soft Queen, XOOQ1

TO:
Full Name Anthony James D’Van & Tina Marie D’Van
Address 24 Sunset Terrace, Nightcap
Phone (03) 715 7155, (03) 715 7156

The goods comprised in the credit sale agreement No 4700316 dated 1st April 2005 which were repossessed from you, were sold on the 30th September 2005. This statement is served on you pursuant to Section 33 of the Credit (Repossession) Act 1997.

PROCEEDS OF THE SALE:
(1) The goods were sold for $ 1200.00
(2) Less the cost of expenses of and incidental to the sale $ 290.26
(3) The net proceeds of the sale $ 909.74

THE AMOUNT REQUIRED TO SETTLE THE AGREEMENT AS AT DATE OF SALE:
Total amount payable under agreement $ 1801.30
Less deposits and instalments paid $ 690.32
Balance due under the agreement $ 1110.98
Less statutory rebates $ 35.01
1075.97
Add
(1) Costs of repossession $ 120.00
(2) Costs of storage, repairs, or maintenance $
(3) Overdue charges $
(4) Costs of valuing and preparing for sale $ 50.00
(5) Costs of remedying breaches of the agreement $

Amounts required to settle the agreement $ 1245.97
Less proceeds of sale $ 909.74

THE BALANCE OWING UNDER THE AGREEMENT (BY YOU TO US) IS $ 336.23

Payment of the amount is due by 4 November 2005 to avoid legal action against you to recover the debt.

Dated this 4th day of October 2005.