Arizona has adopted the Uniform Commercial Code to govern sales and secured transactions under state law. Secured transactions occur when a third-party creditor lends money to a borrower to purchase an expensive item, like a car. The car (or other item) acts as collateral for the loan, leaving the creditor with a “secured” interest in the car. Arizona Revised Statute, Title 47, Chapter 9 governs car repossession laws in Arizona. Creditors can lawfully repossess cars without going to court under certain circumstances.
In addition to Arizona law, the sales contract between the borrower and the creditor governs the terms of the agreement. The borrower purchases a car with the money the creditor lends. In exchange for the loan, the borrower agrees to make monthly payments to the creditor, which includes payments on the loan’s principal and interest it accrues. The sales contract codifies the creditor’s security interest in the car and usually provides provisions for the creditor’s repossession rights.
Under Arizona car repossession laws, the creditor must “perfect” its security interest in the car. The security interest acts as a lien on the car and the creditor must ensure the car’s certificate of title includes a notation describing the lien. The certificate of title, with the lien noted on it, must then be filed with the Arizona Department of Transportation. If the creditor’s security interest is not “perfected,” the creditor cannot lawfully repossess the vehicle without going through a court proceeding.
If the borrower stops making payments or violates any other provision of the sales contract, then Arizona law considers the borrower to be in “default.” If the borrower goes into default and the creditor has perfected its security interest, then the creditor can repossess the car without going to court. That means the creditor can send a tow truck to pick up the car. However, the tow truck driver cannot “breach the peace” when he repossesses the car. In other words, the tow truck driver cannot use force or the threat of force or violate Arizona trespass laws when he repossesses.
Arizona law allows a borrower to redeem the car before the creditor disposes of it or enters into a contract to resell it. To redeem the car, the borrower must pay all back car payments as well as any reasonable costs the creditor incurred as a result of the repossession. These costs can include reasonable attorneys’ fees.
The creditor can resell the car at public or private auction. However, all aspects of the sales must be commercially reasonable. If the creditor does not recuperate all of its losses in the resale, then it can attempt to get that money from the borrower who defaulted.