Not everything secured by a loan is real estate. When the collateral is a vehicle, a piece of equipment, business inventory, or other personal property, the foreclosure rules we describe in the ABCs of Foreclosure do not apply. Personal property repossession is governed by a completely different set of rules, and the consequences of getting those rules wrong can be just as severe.
We have handled personal property repossession matters for lenders, equipment finance companies, and commercial creditors for years.
How Repossession Works
Repossessing personal property collateral and recovering the money owed are two separate steps, and both matter.
The first step is taking the collateral back. Under Texas law, which follows the Uniform Commercial Code, a secured creditor has the right to take possession of the collateral after the debtor defaults without going to court, as long as the repossession can be accomplished without a “breach of the peace.” That is a legal term of art, and it essentially means you cannot use force, threats, or intimidation to take the property. You cannot take it over the debtor’s objection if the debtor is physically present and protesting. You cannot break into a locked space to get it.
When self-help repossession is not safe or practical, for example when the collateral is inside a locked building, the debtor is uncooperative, or the situation feels confrontational, the creditor’s alternative is to file suit and obtain a writ of sequestration from the court, which authorizes law enforcement to assist in taking the property.
The second step is selling the collateral. This is where many lenders get into trouble.
The Commercially Reasonable Sale Requirement
After repossessing the collateral, the creditor must dispose of it in a “commercially reasonable manner.” That phrase sounds vague, but courts take it seriously. It means the creditor must make a genuine effort to get a fair price for the collateral, not just dump it at a fire sale.
More importantly, before selling the collateral at a private sale or at auction, the creditor must give the debtor (and any guarantors) proper written notice of the sale. The notice must describe the collateral, state the method of sale, and give the debtor adequate time to respond, redeem the collateral, or find a buyer themselves.
Getting this notice wrong, or skipping it, has a specific and very painful consequence for the creditor.
What Happens When You Get It Wrong
A creditor who fails to give proper notice before disposing of repossessed collateral, or who disposes of it in a way that is not commercially reasonable, can lose most or all of the deficiency.
In a commercial transaction, Section 9.626 of the Business and Commerce Code puts the burden on the creditor. Once the debtor puts compliance in issue, the creditor must prove the sale was conducted properly. If it cannot, the law presumes the collateral was worth the full amount of the debt, which leaves no deficiency at all. The creditor can still recover by proving what a compliant sale would actually have brought, but that is a burden it has to carry and an expensive one. Consumer transactions can be harsher still, because Texas courts set the rule there case by case. Either way, the mistake is costly and avoidable.
We see this happen. It is almost always avoidable.
How We Help
We manage the entire repossession and disposition process for our clients, including sending the proper pre-sale notice, reviewing the proposed method of sale for commercial reasonableness, and ensuring the documentation is clean enough to support a deficiency claim if the sale does not cover the full debt.
If you have a defaulted loan secured by personal property and you are not sure how to proceed, contact us before you take any steps. The sequence matters.
In this section: Repossession · Notice Before Selling Repossessed Collateral
Frequently Asked Questions
Can I repossess equipment that is inside a building the debtor controls?
This is where the breach-of-the-peace rule matters most. If the collateral is inside a locked building, a garage, or any location where taking it would require breaking a lock, entering without permission, or confronting the debtor, self-help repossession is not available. In that situation the correct path is to file suit and obtain a writ of sequestration from the court, which authorizes law enforcement to assist in recovering the collateral. We handle this process when self-help is not an option.
What is a writ of sequestration and when do we need one?
A writ of sequestration is a court order directing law enforcement to take possession of specific property and hold it pending the outcome of litigation. It is the court-supervised alternative to self-help repossession. We use it when the collateral is in a location where self-help would be unsafe or impossible, when the debtor is likely to resist, or when we need a documented chain of custody for the collateral.
What if the debtor has moved the collateral and we cannot find it?
If the collateral has been hidden, moved out of state, or transferred without authorization, we file suit for conversion and seek court orders requiring the debtor to disclose the location of the collateral. We can also pursue the guarantors for the full amount of the debt in this situation without waiting to recover the collateral first.
Does the debtor have a right to redeem the collateral after repossession?
Yes. Until the collateral is actually sold or otherwise disposed of, the debtor has the right to redeem it by paying the full outstanding debt plus reasonable expenses of repossession. Once a proper notice of sale has been sent and the commercially reasonable sale period begins, the redemption window narrows. After the sale is complete, there is generally no right of redemption.