Wheels of Justice
On cars about to be repossessed QUESTION: Is it legal for the repo guys to stealthily— or even forcefully—take your car away? What is the proper procedure if your car is repossessed?
Yes, it is legal for the court sheriff or the mortgagee bank officer to exercise stealth and reasonable force to repossess a mortgaged car due to the mortgagor car owner’s failure to pay an amount owing to the bank under the loan and chattel mortgage.
The procedure for the mortgagee bank to repossess a mortgaged car is governed by the promissory note and the chattel mortgage entered into by the bank and buyer/owner. It is further governed by the Chattel Mortgage Law (Act No. 1508), the Civil Code, the Rules of Court, and the Revised Penal Code. Unlike other countries, the Philippines does not have a law specifically governing “fair debt-collection practices” for creditors, debt collectors, and repossession guys (repo guys).
Read the fine print of the terms and conditions in the signed copy of the Promissory Note and Chattel Mortgage. Typically, it states that the bank agrees to lend the buyer the financed amount, which the buyer agrees to pay back on an installment basis with interest for a term ranging from one to five years. To guarantee payment of the loan, the buyer will mortgage the car in favor of the bank. In the event of a failure to pay or a breach of the contract, the bank can foreclose and take possession of the mortgaged car. The bank will then sell the car at a public auction, and apply the proceeds as payment for the loan.
The most important contract clause will read: “In the event of default, the bank shall be entitled to be the attorney-in-fact of the borrower with full power to enter the premises where the mortgaged car is located, and to take actual possession and control of the mortgaged car without the need for any court order or any written permission from the borrower mortgagor.” The Promissory Note and Chattel Mortgage used by the banks for car loans contains many subtle terms and conditions.
The ‘standard’ contract clauses can be any of the following: the borrower must keep the mortgaged car at the address on record with the bank; he must keep the car free and clear of all other mortgages and encumbrances; he must use the car for private or personal use; he must not use the car as a taxi or ‘for hire’ vehicle; he shall register the car in compliance with law; he cannot assign, sell, mortgage or encumber, or transfer possession of the car without prior written consent of the bank; he must allow the bank to inspect the car at any reasonable time; he must keep the car covered by a comprehensive insurance policy; and he must maintain the car in good and running condition.
If the borrower uses the car ‘for hire’ by the public, he can be held criminally and civilly liable for fraud and damages to compensate the bank for the accelerated depreciation and loss in market value of the car.
If the borrower fails to pay on a due date any installment, interest, penalty or amount payable, or is in breach or fails to perform any of his obligations in the Promissory Note and Chattel Mortgage, the bank may declare him in default of the contract, foreclose on the mortgage, and repossess the car. The bank may bid at the auction sale under judicial or extrajudicial proceedings.
The bank may resort to either: an extrajudicial foreclosure as provided under the Chattel Mortgage Law (Act No. 1508), or a judicial foreclosure of the chattel mortgage. The former mortgage is premised on the voluntary surrender of the car by the owner to the bank; the latter is premised on the refusal of the owner to turn over the car to the bank. The bank must invoke the aid of the competent court by filing a replevin case against the owner under the Rules of Court.
In a replevin case, the bank seeks a court order to recover possession and to take delivery of the mortgaged car. The court shall issue an order and the corresponding writ of replevin, describing the car alleged to be wrongfully detained and requiring the sheriff forthwith to take such property into his custody.
The sheriff has the power to break open the premises of the mortgagor. The Rules of Court provide that if the mortgaged car or any part thereof “be concealed in a building or enclosure, the sheriff must demand its delivery, and if it be not delivered, he must cause the building or enclosure to be broken open and take the property into his possession. After this, he must keep the car in a secure place and shall be responsible for its delivery to the party entitled thereto.
Because the Philippines does not have a law governing “fair debt-collection practices” for creditors, debt collectors, and repo guys, the repo procedure is governed by the general laws. The repo guy can take away your car, but assuming the breach of contract exists, you cannot report it as carnapped.
The repo guy can enter or break open premises where the car is concealed, but he cannot use violence or force on the person of the car owner or a representative. He cannot use obscenities, insults or profane language, which amounts to a criminal act. He can take the car and its accessories, but he cannot take your nonmortgaged or personal property on board the car. Finally, he can employ high-tech devices to track down or remotely shut off the car, provided he does not violate any privacy laws.