Before repossessing a vehicle, Article 9 of the UCC requires that a dealership have a valid security interest in the vehicle, and the purchaser must be in default. A security interest is obtained by selling the vehicle pursuant to a retail installment agreement and recording any lien on the vehicle’s certificate of title or by filing a UCC-1 financing statement. The sales contract must specifically grant the dealer a security interest in the collateral, and the actual owner of the vehicle (debtor) must sign the contract. A security interest becomes “perfected” when the debtor has signed a security agreement which contains a description of the collateral, when value has been given, and when the debtor has rights in the collateral. Although perfection of a security interest is not necessary for collection of collateral upon default, it assures the dealership’s priority in the event that the debtor grants a security in the same collateral to another party.Unless you have a UCC-1 filing where you place a lien on the car and/or notation on the title of the vehicle, legally when you transferred title to the customer, the car became his and you did not have permission to repossess it.
if that is the case the customer may have a cause of action against you for damages notwithstanding the amount the customer owes you. In addition, under certain circumstances if you continue to accept late payments from a customer you may not claim contract default. For example, customer is two months late owing you $100 but offers you $20. You then accept the $20 which means that you in effect have modified the contract and the customer is no longer in default. This would also put in question the terms of the contract.
In conclusion, if there was no UCC-1 filing and/or proper notation on the vehicle's title the customer can sue you. The good news is that you do have a counter claim for the amount owed to you.
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