If there is one step in the personal property repossession process where creditors consistently stumble, it is this one. Before you sell, auction, or otherwise dispose of repossessed collateral, you must give the debtor proper written notice. Skipping this step, or doing it incorrectly, can cost you the right to collect the remaining balance after the sale.
Courts enforce this notice requirement strictly.
Who Must Receive the Notice
The notice must go to the debtor. It must also go to any guarantors on the loan. And it must go to any other party who has notified you that they have a security interest in the same collateral.
If you send notice only to the primary borrower and forget the guarantor, the guarantor may later be able to argue the sale was not conducted properly, and in some cases that is enough to defeat a deficiency claim against them.
What the Notice Must Say
The notice must describe the collateral being sold. It must state whether the sale will be a public sale (an auction open to the public) or a private sale (sold to a specific buyer through negotiation). If it is a public sale, it must state the time and place of the auction. If it is a private sale, it must state the time after which the sale may occur.
The notice must give the debtor a reasonable amount of time to respond. For most commercial transactions, ten days is commonly used. For consumer transactions, meaning loans made primarily for personal, family, or household purposes, there are additional protections and the standards are stricter.
The Debtor’s Options After Receiving Notice
Giving proper notice accomplishes something important for the debtor too. It gives them a real opportunity to redeem the collateral, meaning pay off the full outstanding debt plus costs and get their property back before the sale. It also gives them an opportunity to find their own buyer and potentially get a better price than a forced sale would produce.
A debtor who receives proper notice and does nothing has far less to complain about after the sale. A debtor who never received proper notice has a legitimate grievance that can unravel your deficiency claim.
The Commercially Reasonable Sale
Notice is only half of it. The sale itself must be conducted in a commercially reasonable manner. That means the creditor must make a genuine effort to maximize the recovery from the sale. Taking reasonable steps includes properly advertising the sale, giving it adequate exposure to potential buyers, and not selling in a way that is designed to produce an artificially low price.
There is no bright line for what is and is not commercially reasonable; courts look at all the circumstances. We advise our clients on the method of sale before they proceed so that the disposition process holds up if the debtor later challenges it.
Consumer Collateral vs. Commercial Collateral
The rules are stricter when the loan was made for personal, family, or household purposes, such as a car loan as opposed to a commercial equipment loan. Consumer transactions carry additional protections under Texas law, and the consequences of non-compliance in a consumer repossession can be more severe.
We identify whether a transaction is consumer or commercial at the outset so our clients know exactly what they are dealing with.
In this section: Repossession · Repossession of Personal Property: The Basics
Frequently Asked Questions
What happens if we skip the notice and sell the collateral anyway?
In most Texas cases, a creditor who disposes of repossessed collateral without giving proper written notice loses the right to collect any deficiency judgment from the debtor. The collateral is gone, the debt is partially unsatisfied, and the creditor has no legal recourse for the difference. This is a costly mistake in personal property creditor practice, and it is also one of the easiest to prevent.
How much time must the notice give the debtor before the sale?
The notice must give the debtor a "reasonable" time before the sale. For commercial transactions (loans made for business purposes), ten days is generally treated as reasonable by Texas courts. For consumer transactions (loans for personal, family, or household purposes), the standards are stricter and the notice must be sent at least ten days before the sale, with some courts requiring more. We set the notice period conservatively to avoid any dispute.
What is the difference between a public sale and a private sale?
A public sale is an auction open to the general public, advertised in advance so that anyone can attend and bid. A private sale is a negotiated transaction with a specific buyer. Both are permitted under Texas law, but the notice requirements differ. A public sale notice must state the time and place of the auction, while a private sale notice must state the time after which the sale may occur. The choice of sale method also affects what counts as "commercially reasonable."
Can we buy the collateral ourselves at the repossession sale?
Yes. A secured creditor can bid at its own disposition sale, including a public auction. However, buying the collateral at a price below fair market value and then claiming a large deficiency is exactly what the "commercially reasonable" standard is designed to prevent. If you buy in at a low price and then seek a deficiency, the debtor will argue the sale was not commercially reasonable and the deficiency should be reduced accordingly.