Financial institutions can repossess items if a consumer defaults on a purchase agreement. The creditor may sell the item in a recovery auction, subject to legal requirements. If the auctioned amount is less than owed, the buyer may be liable for the difference. Repossessed property often sells for less than market value. Homes and cars sold at a repossession auction are typically sold without collateral, and full payment is required soon after the auction.
If a consumer defaults on an installment agreement or other purchase agreement in which legal ownership of the purchased item remains with the financial institution, the lender may choose to repossess the item. In order to recover the amount still owed, and subject to the terms of the agreement, the creditor may sell the item in a recovery auction. Recovery and the resulting auction are usually subject to legal requirements that vary by country and state. The terms of the original purchase agreement may also specify the process the lender must use to auction off the repossessed property. In some cases, homes, cars, and other valuable assets sell for significantly less than their market value in a salvage auction.
If the money made by auctioning off the property is less than the amount owed, the buyer is usually liable to the lender for the difference. In cases involving foreclosed homes or cars with large outstanding balances, consumers can be sued by the financial institution seeking to recover this shortfall. In the case of non-recourse loans, the properties pledged as collateral for a loan can be sold at auction; however, the obligee cannot prosecute the obligee for any resulting shortcomings.
In many jurisdictions, auctions are conducted by a private auctioneer who assembles a number of salvaged vehicles or other items to be sold at once. These auctions are usually advertised in local media and on the internet. The vehicle or other property being auctioned is usually sold without any collateral, and in most cases, the auctioneer requires full payment in the form of cash or cashier’s check. Because of these risk factors, repossessed property often sells for much less than its market value.
To sell a home or other property that is in foreclosure at a repossession auction, the lender is usually required to follow certain procedures detailed in the purchase agreement. These may include notices to the borrower informing them of the upcoming repossession auction and the potential liability of the borrower for any shortfalls. As part of the foreclosure process, the lender may be required to publish legal notices in a newspaper. In some jurisdictions, the laws governing repossession require that the property be auctioned off by a marshal or other civil court official. As with repossessed vehicle auctions, homes sold at a repossession auction are typically sold without collateral and full payment is usually required soon after the auction.
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