Repossession

If you default on your loan, the lender has a choice to either issue proceedings and continue to charge interest and fees or they can repossess secured goods – this freezes the amount owed under the loan. They can’t repossess and continue to charge interest and fees.

What is repossession?

When you first signed up for your loan you might have agreed that if you do not make payments on your loan, your lender could take and sell some of your property and put the money they get from the sale towards the loan. The right for the lender to do this is called having a security interest in your property. The process of taking your property away to sell it to repay your loan is called repossession.

Your lender should have talked to you about what property was covered by the security interest and explained that it could be repossessed before you entered into the contract. If they did not and they want to repossess your property, you should talk to your budget adviser or community law centre as soon as possible.

What is a security interest?

Sometimes your lender may ask you to give them what is called a “security interest” over something you own or that you are paying off. This means that they can take the item from you and sell it if you miss payments or otherwise break the terms of your loan contract. For example, your lender may take security over the car that you are paying off. If you miss payments on your car loan, your lender could seize your car and sell it (unless you quickly catch up on your payments and pay any default fees and default interest owing).

However, lenders may not take security over – or repossess – some types of household items and important documents, including:

• beds and bedding
• cooking equipment including stoves
• medical equipment
• portable heaters
• washing machines
• refrigerators.

Documents that a lender cannot take a security interest over are:

• travel documents
• identification documents
• bank cards.

The only exception to this rule is where you took the loan out specifically to purchase one of these household items. For example, if you took out a loan to purchase a bed, then the lender can use the bed as security for the loan. This means the bed could be repossessed if you fall behind with payments on the loan for the bed.

As well as following these rules, your lender must treat you and your property reasonably and ethically throughout the repossession process.

When can a lender repossess your property?

Your lender can only begin to repossess your property if:

• they have a “security interest” in the property they want to repossess, and
• those items are specifically described in the loan contract, and
• you are behind on your loan payments or the secured property is “at risk” (see below).

When can your items be considered “at risk”?

Your property is “at risk” when your lender has reasonable grounds to believe that the property has been or will be destroyed, harmed, sold, hidden or otherwise disposed of.

Example: Your lender has a security interest in your car (which you have not yet paid off) and they have a right under the loan contract to repossess it. You have decided to sell the car without telling your lender, and have listed it for sale online. Your lender may consider your car is “at risk.” This means they can take immediate action to repossess your car without giving you the usual 15 days’ notice.

What items can be repossessed?

The only property that can be repossessed is property that is specifically listed in the loan contract as being subject to a "security interest".

Specifically listed means that there must be an adequate description of the secured property, item by item, that enables it (or them) to be identified – it is not enough to simply describe the items by kind. For example, a loan contract that describes a television being used to secure a loan as a “TV” or even “40 inch TV” is not enough. A good description would include detailed information, such as “40 inch Sony Bravia HD TV model W800B with remote control.” Good descriptions avoid any dispute about exactly which items of your property are secured and can be taken, and which cannot. If you are worried that your lender may repossess your property, check your loan contract to see whether that is allowed and what specific items can be taken. Remember, if you are facing repossession action, you only need to allow those specific items to be seized.

Know your rights

When you are facing repossession, you still have certain important rights.

Lender’s behaviour

Your lender, or their agent (such as a tow-truck driver who might repossess your car) must treat you and your property reasonably and ethically during the repossession process, including taking all reasonable steps to ensure that:

• your property is not damaged during the process
• any property that is repossessed is adequately stored and protected
• the right to enter your house or flat is not exercised unreasonably.

Warning about repossession

Your lender must give you at least 15 days written warning that they intend to repossess your property. This notice is called a repossession warning notice.

The repossession warning notice must include key information that you need to know about the repossession, including what is to be repossessed, why, and what you can do to stop the repossession from going ahead (for example, paying what you owe or insuring items of property where insurance is a requirement under the loan).

The only time your lender does not need to give you a repossession warning notice is if your lender has reason to believe your property is “at risk”. The lender can take urgent action in this situation.

Your lender cannot take repossession action unless you have failed to meet your loan obligations by the time specified in the notice, or the 15 days written notice has expired.

Each repossession warning notice expires within 60 days of you receiving it, and after that time, if the repossession has not gone ahead, your lender will have to issue you with a new repossession warning notice if they still want to repossess your property. Extra time must be added to the 60 days if you have made a hardship application after the repossession notice was issued.

Licensing requirement

Lenders and their agents or employees must be licenced or certified. If they are not, they are not permitted to enter your house or flat to inspect or repossess your property. Ask to see the license or certificate of anyone who wants to repossess your property or to enter your house or flat for that purpose.

What if I have applied for hardship?

If you have made a hardship application, your lender may not take repossession action until the hardship application is decided. The one exception to this is where your lender thinks that property is “at risk”.

When can they enter my property?

Your lender can only enter your house or flat (including garages or driveways associated with your place) between 6am and 9pm Monday to Saturday and they must leave by 9pm. They cannot enter on Sunday or a public holiday.

You can agree to entry outside these times, but there are rules your lender must follow when getting your agreement:

• If your lender wishes to seek your agreement to enter your home outside the permitted times, your lender must approach you within the permitted times – ie, between 6am and 9pm Monday to Saturday.
• Your lender can only ask you to agree to entry outside the permitted times if you have already missed a payment.

Forced entry to your property

Your lender should try to carry out the repossession when you are home. However if you are not home, your lender can enter your house or flat anyway, if they have the right under your loan contract to do so. They should find a way to enter that causes the least amount of damage and take steps to ensure the house is not left obviously open. If you are not home, the lender must also leave a notice explaining that they have entered your house or flat, the date of entry and provide you with a list of any items of property they have removed.

Information you must be given

Your lender must show you certain key documents when they first enter your house or flat:

• A copy of the repossession warning notice (you will not get this if your property is being repossessed because it is “at risk”).
• A copy of your loan contract.
• A copy of the lender’s licence or certificate.
• If an agent is carrying out the repossession on behalf of your lender, proof that they have your lender’s authority to repossess the property.
• A statement with the address of the house or flat being entered, the date of entry, and a list of items to be taken.
• A statement of your rights following repossession of the property and your rights to make a complaint about the lender’s conduct.
• A copy of your consent if you have agreed to the repossession happening after-hours.

If you were not home when the lender repossessed, these documents must be left for you in a prominent place.

Voluntary surrender of property

Once you have received a repossession warning notice, you can prevent the need for the lender to enter your house or flat and repossess your property, by voluntarily giving it to the lender – this is called "voluntary surrender".

The rules differ depending on when you entered into your loan:

• For loan contracts signed before 6 June 2015, your lender will need to consent to accept delivery of the property if your loan contract does not allow for it.
• For loan contracts signed after 6 June 2015, you can choose to deliver the property to your lender at the place stated in your repossession warning notice.

What happens after repossession

Your lender must give you written notice within 14 days of the repossession which gives you information about the repossession and how you can get your property back. This is called the post-repossession notice.

It must include key information like:

• the date of the repossession
• a list of things that were taken and an estimate of their value
• what you need to do if you want to get your property back
• what will happen if you do nothing – your property will be sold and you will be liable for the difference between what you owe and what the property is sold for (after expenses are deducted). Alternatively, if there is money left after your loan is paid off from the proceeds of the sale, you will get a refund.

How can I get my property back?

There are two ways that you can get your property back:

• You can reinstate your loan by paying any overdue amounts (only the amounts that are in default, not the entire loan) and meeting any other obligations (including paying the lender’s reasonable costs of repossession action) so that the loan is no longer in default. Once the loan is reinstated, your lender must return the repossessed property to you. Then the loan will continue as if the default and repossession never occurred.
• You can settle your loan by paying back the balance of the loan, doing anything else that you need to do under the loan contract (for example insuring the property) and paying your lender’s reasonable costs of repossession action. Once the loan is settled, your lender must immediately return the repossessed property to you and the loan is ended.

To be sure of getting the repossessed property back, you need to reinstate or settle the loan before the lender is legally entitled to sell your property (15 days after you received the post-repossession notice).

Selling the property

If you do not reinstate or settle the loan within 15 days of receiving the post-repossession notice, the lender can put your property up for sale or dispose of it.

You have some rights regarding what happens to your property after repossession. The lender can generally choose any way of selling your property (for example, by auction, private sale or tender), but they must ensure that the sale is commercially reasonable and that they obtain the best price reasonably obtainable at the time.

If the lender does not sell the property within 30 days of the repossession, you can force the lender to sell your property by auction. You may also request a valuation of the property (at your expense) or introduce a buyer to your lender. If you introduce a buyer, your lender must sell the property to them for at least its estimated value, as set out in the post-repossession notice. Introducing a buyer may make it easier for your lender to sell your property.

After selling your property, your lender must apply the money from the sale to reduce your loan.

Within 7 days of the sale the lender must send you a statement of your loan account, including key information like:

• the price your property was sold for
• the lender’s costs for selling your property
• the amount left to pay on your loan at the time your property was sold
• the amount left to pay if there is a shortfall between what your property was sold for (minus the sale costs) and what you owed
• if your property sold for more than you owed on the loan, the amount the lender owes you (minus the sale costs).

If you still have a debt after your property is sold, the lender must not add any further interest or fees to the amount of your loan.