Buying a car is not the same as owning a car in Michigan. While the buyer gets to drive the new vehicle and park it in their driveway, the company that financed the purchase holds a real, legal interest in it as well.
If a Michigan buyer owes money on their car loan and falls behind in payments, the lender, or a repossession company they hire, can take possession of the vehicle. This is called car repossession. Anyone buying a vehicle with borrowed funds in Michigan should get an overview of the state's repossession laws, including buyer protections.
Michigan Car Repossession Laws
More people are more aware of home foreclosure laws than they are of auto repossession laws. Those with a mortgage in Michigan know that if they fail to pay the bank, the lender can foreclose on the dwelling. But foreclosing on a home loan is not a quick-and-dirty business. While a foreclosure sale is a legal possibility, the laws give homeowners months and sometimes years to attempt to cure the default.
On the other hand, a bank that lends vehicle purchase money in Michigan holds similar rights, and vehicle repossession is a much speedier process than foreclosure. Lenders making vehicle loans take back a lien on the car, truck, motorcycle or RV. This gives them a legal interest in the vehicle until the final loan payment is made.
No Notice to Borrower Required
If the borrower fails to make a loan payment, the lien holder does not have to go to court or even give them notice of the default. They need not take any steps to try to compromise or work things out.
When a Michigan car buyer misses a payment on the car loan, the lender/lien holder can repossess without so much as a phone call to the buyer. Note that these are also the rules for those leasing cars who miss a payment.
Vehicle Lien Required
Michigan repossession law sets a few minimum standards for auto liens in the state. The state vehicle code mandates that a bank or lending institution can only repossess a vehicle if they have a valid lien filed against that vehicle with the Michigan Department of Motor Vehicles.
The lien filed against the vehicle must include:
- Vehicle identification number.
- Buyer's name.
- Name of the bank or lending institution that holds an interest in the vehicle.
If the lender has not filed a lien, they cannot lawfully repossess or attempt to repossess a vehicle in the state of Michigan.
Vehicle Repossession Process in Michigan
Although repossession is legal in Michigan, there is nothing about the process that looks legitimate. What does an average repossession look like? The lender directs a tow truck to drive to the borrower's house or worksite, hitch up the vehicle, and move it to the lender's lot. And, assuming the buyer was in default on their car payments, this procedure is perfectly legal.
However, there are limits to what a repossession agent can do during the repossession. While the lender can send someone to tow the vehicle, they must follow certain rules in Michigan:
- No type of violence or breach of peace is permitted during repossession. The repossession agent cannot break down the garage door to get at the car, nor can they fight with the owner.
- Repossession agents cannot enter the borrower's home or garage to recover the car.
- If the buyer is present and objects or attempts to prevent repossession, the tow truck has to leave. That is why repossession usually happens when the vehicle owner is at work or asleep.
- Trickery and/or fraud is not permitted. If a repossession agent lures the buyer with lies to leave the vehicle in their possession, or tricks them into taking the car to a shop where the agent recovers it, it breaks Michigan law. On the other hand, if the borrower takes the car into a shop on their own, the tow truck driver can repossess the vehicle there.
- The repossession agent cannot be rude, insulting or threatening, and cannot ask for police assistance unless they have obtained a warrant.
Repossession Notice and Redemption
A lender in Michigan has no legal obligation to let the borrower know that they are going to repossess their vehicle, nor do they have an obligation to advise them when it is taken. But Michigan state law does mandate that the lien holder send the buyer notice of the time and place of the repo sale before it occurs.
The notice of the sale should include language that lets the borrower know that they may get their car back if they pay off the loan. In Michigan, that doesn't mean simply bringing the payments up to date. The buyer must pay the entire outstanding loan balance, as well as any penalties, interest, towing fees and storage fees.
If a buyer manages to pay the sum total of these expenses before the creditor sells the vehicle or enters into a contract to sell it, they have the right to reclaim their vehicle.
Creditor's Right to Keep the Vehicle
Sometimes, the creditor can simply keep the repossessed vehicle to satisfy the debt. Under Michigan law, the creditor has this right if, at the time of repossession, a borrower has paid less than 60 percent of the car loan. If the creditor wishes to do this, their intention must be included in the notice to the borrower.
The borrower may object to this procedure. If they do so within 21 days of the time they get notice of the creditor's intention, the creditor cannot keep the vehicle but must resell it at auction. All auction sales of repossessed vehicles must be handled in a commercially reasonable manner. The time, manner of sale and place of sale must all be reasonably calculated to get market-value bids.
Right to Sue Borrower for More
Sometimes a lender does not get enough money by selling the repossessed car. The difference between the amount owed and the sales price is called the deficiency. In Michigan, the lender can collect the deficiency from the buyer, but only if they sent a written notice of the repossession.
Michigan law protects a buyer in several ways from repossession damage. If a buyer had personal belongings in the vehicle, like a coat or a telephone, they have a 30-day window in which to retrieve them. The repo agent might charge storage fees for those personal items, and the buyer may have to make an appointment to retrieve their personal property.
Under Michigan law, the debtor must be advised of the right to redeem the vehicle by paying any past due amounts and any costs incurred by the bank or lending institution as a result of the repossession. This notification must occur prior to the time the vehicle is sold to a third party.
If this notice requirement is violated, the seller does not have the right to seek compensation for any money owed that is not recovered in the sale.
Teo Spengler earned a JD from U.C. Berkeley Law School. As an Assistant Attorney General in Juneau, she practiced before the Alaska Supreme Court and the U.S. Supreme Court before opening a plaintiff's personal injury practice in San Francisco. She holds both an MA and an MFA in English/writing and enjoys writing legal blogs and articles. Her work has appeared in numerous online publications including USA Today, Legal Zoom, eHow Business, Livestrong, SF Gate, Go Banking Rates, Arizona Central, Houston Chronicle, Navy Federal Credit Union, Pearson, Quicken.com, TurboTax.com, and numerous attorney websites. Spengler splits her time between the French Basque Country and Northern California.