Debt Collection A to Z: S is for Security Agreement

Myth:  Anytime one purchases or leases a vehicle there is an automatic right of repossession for the seller or lessor.

Fact:  Anytime a seller or lessor wishes to have the right of repossession there must be a written agreement signed by the purchaser or lessee.

A security agreement is what is used to create the right of repossession.  The agreement secures the collateral (i.e. the vehicle or good being transferred) and typically provides the seller/creditor/lessor with several legal options regarding recovery of the collateral.

One for your briefcaseA security agreement need not be a fancy document but in order to create a security interest enforceable against the debtor, there  are three requirements set forth in UCC 9-203(b):

  1. The secured party must give value;
  2. The debtor must have rights in the collateral; and
  3. The debtor has authenticated (e.g., signed) a security agreement.

OK, so how does this happen in real life?  Usually the seller/lessor/creditor will have a document that specifically identifies the item being transferred and states the buyer/lessee/debtor agrees that in the event of a default the seller/lessor/creditor has the right to collect on collateral, the right to repossess collateral, the right to sell or dispose of collateral, and the right to retain the collateral in full or partial satisfaction of the debt with the borrower’s consent.  A Bill of Sale, finance contract, retail installment sales contract, and other items typically seen in consumer transactions may create the security agreement BUT the key is not the name of the document but the substance of the document.  If certain items are missing there is no right to repossess or otherwise regain the collateral.

If you are a consumer whose collateral has been taken or is subject to being taken you should consult an experienced consumer law attorney for a review of your rights and the other party’s remedies.  Burying your head in the sand can be a huge problem.  What you do not know can sink you in the quicksand.



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