Car Repossession Laws in Arizona

In Arizona, like in every other state, those who finance automobile purchases are in business to make money. They lend money to individuals to buy motor vehicles only after the borrower signs a loan agreement to repay the amount plus interest. This same written car loan agreement contains language giving the lender a security interest in the car or truck. That means that, if the borrower doesn't make the promised payments, the lender can repossess the car and sell it to recoup the loan principal and interest.

Every state has slightly different repossession laws. Those financing vehicle purchases in Arizona should get an overview of this state's statutes.

Everyone understands that if they are not able to pay their home mortgage, the bank may foreclose on the secured debt, take back the house, and sell it to pay what is owed. Vehicle repossession works in the same way. Like buying real estate, purchasing a vehicle can be a secured transaction in Arizona when the buyer borrows money from a lender to pay the seller.

In order to protect their auto loan, the Arizona lender takes a security interest in the vehicle. If the buyer fails to pay the lender according to the terms of the loan, the lender can take the vehicle and sell it to get back their money. Generally, the lender uses repossession companies to physically recover the car. Under Arizona Revised Statutes Title 47, Chapter 9, neither the lender nor the repossession company is required to give the borrower notice before the car is seized.

Arizona adopted the Uniform Commercial Code to regulate secured transactions under state law. While Arizona law sets out the procedure for vehicle repossession, the fact of the security interest is a matter of contract law, as well. The loan contract in Arizona not only specifies the amount of the loan, but also must specify the vehicle being purchased and the lender's security interest in the vehicle.

In Arizona, this perfected security interest is a lien on the car. The lender's name and status as lien holder is recorded on the car's certificate of title, filed with the Arizona Department of Transportation. If the lender is not listed as a lien holder on the title of the vehicle, they cannot use the repossession procedure set out in the statute. Instead, the lender must go to court and obtain a judgment before repossessing the car.

The minute the borrower fails to make a required payment under the loan agreement, they are in default of the loan. The lender can, at this point, repossess the vehicle without any notice to the borrower. This is also the case if the borrower violates any other provision of the contract, like failing to maintain insurance on the vehicle.

Once the buyer is in default, the lender can send a tow truck out to repossess the vehicle without going to court before doing so. However, the company or individual repossessing the vehicle for the lender must abide by the rules set out in Arizona law for repossession. The basic rule is that those repossessing the car cannot breach the peace while doing so.

What acts constitute a breach of peace during the repossession of a vehicle in Arizona? Those who repossess cannot use physical force or the threat of force during the process and cannot assault or injure the borrower. They may not trespass in a private garage or take a vehicle from a private gated area. They cannot trick the owner into bringing the car to their garage, and they cannot injure the vehicle or the owner's property.

If the owner of the vehicle appears and objects to the repossession, the lender's team must stop and leave the area. That is why most repossessions happen at night while the owner is asleep.

The owner of the car is not permitted to breach the peace either. It is considered breaching the peace in Arizona for a car owner to remove or hide the car to prevent the lender from repossessing it.

Once the creditor has repossessed a vehicle in Arizona, assuming it was done appropriately and after default by the actual borrower, state law allows a sale at public or private auction. The sale must be "commercially reasonable," that is, calculated to obtain at least fair market value for the repossessed vehicles. The lender must give the borrower written, advance notice of the time and place that the sale will occur to allow the borrower to redeem the vehicle if they can and wish to do so.

The borrower's right under Arizona "repo law" to redeem the car requires that they pay all money owed, including back car payments and interest, as well as costs and fees incurred by the lender during the repossession process. The borrower can redeem the vehicle at any time from the moment the car is repossessed until the lender enters into a contract to sell it to someone at auction.

If the borrower does not redeem the car, and the lender sells it at auction, that does not mean that the borrower is off the hook on the loan. If the car is sold at auction for as much or more than the amount owed, the debt is paid. If, on the other hand, the lender does not get enough money at auction to repay the loan and the fees and costs of repossession and sale, the borrower can still be legally obligated to pay the outstanding loan balance.

The lender has four years in Arizona to take the borrower to court and get a deficiency judgment. The statute of limitations for this action is four years, but whether that period dates from the default or the sale is a question for the courts.