eBay Sales of Repossessed CarsJennifer Monty
July 15, 2008 — 2,759 views
“Welcome to eBay—the next frontier in the sale of reposed cars?” Or, “Welcome to eBay, evidence of a sale being unreasonable?” With its rainbow colored headlines, attractive pictures, and ease of surfing, eBay is a favorite of buyers and sellers of electronics, shoes, clothing, and collectibles. But is eBay the best outlet for secured creditors to sell vehicles?
In Ohio, the Revised Code (“ORC”) governs both notice of the sale and the manner of the sale. The relevant portions of the ORC governing repossession and sale are modeled on the Uniform Commercial Code’s (“UCC”) Article 9.
In an ideal situation, the financial institution (secured creditor) files its replevin action after a member defaults on its car loan. The court grants the financial institution final judgment and possession of the vehicle. The financial institution then notifies the member of the sale of the vehicle and conducts the sale in a “commercially reasonable” manner.
In Ohio, every aspect of the sale of collateral must be commercially reasonable including the method of the sale, the manner of the sale, and the time and place of the sale. If the disposition of the collateral is commercially reasonable, it can be done by public or private proceedings. The key to every aspect of the sale is that it be found “commercially reasonable.”
Every seller of repossessed property knows that a proper notice must be sent to the debtor. Notice not only gives the debtor the opportunity to redeem the vehicle, but also allows the creditor to collect any deficiency balance after a sale.
Notice is easy to give for the standard private and public sales. The ORC provides sample forms that contain all the required information, including information on:
• The debtor and the secured party
• The collateral that will be sold
• The method of the sale
• That the debtor can get an accounting of the unpaid balance and the charge, if any, for an accounting, and
• The time and place of the sale. The place must be identified by the place of the business or address that reasonably describes the location of a public sale or the time after which a private sale may be made.
Additionally, if the sale involves a consumer transaction, there must also be a description of:
• The liability for a deficiency
• A telephone number where the debtor can call to redeem the collateral, and
• A telephone number or mailing address where the debtor can get additional information regarding the sale
The sample form can be found at O.R.C. 1309.613 and O.R.C. 1309.614. The ORC also provides that notice must be sent after the default and at least 10 days before the sale.
Notice is more complicated when deciding whether a sale will be public or private because different information is required based on whether the sale is private or public. If a seller incorrectly states whether the sale is private or public, courts routinely hold that the entire sale was unreasonable. If a court finds that a sale is unreasonable, the creditor cannot collect on any deficiency balance.
By its very nature, eBay and other online sites are difficult to classify as public or private sales. Certainly accessing the Internet from the privacy of your home office would appear to be private, but the information, price, and bidding is all part of a public auction that anyone with an eBay password can view.
The official commentary to the ORC and UCC Article 9 discuss the difference between “public” and “private” sales. The commentary states that a public sale is a sale where the “price is determined after the public has had a meaningful opportunity for competitive bidding” and “competitive bidding” involves an advertisement or public notice of the sale.
Public notice of sales provide information to the general public about when, where and what will be sold. Courts often look to the most-widely read publication in the area— the Columbus Dispatch, Cleveland Plain Dealer, Cincinnati Enquirer, etc. A question remains whether merely advertising a vehicle on eBay provides sufficient notice to the general public. Notice of the sale posted on online news sites may be sufficient to show commercial reasonableness. Some Ohio courts look to who has access. A recent court found that an online auction that could only be viewed by dealers, although national in scope, was a private sale and a private sale notice must be provided.
The problem that remains is what type of notice the member should receive. Some scholars suggest giving a general notice and not identifying whether the sale is private or public, but merely that the sale will occur on eBay and providing the length of time of the sale and the web address. See, “eBay Actions of Repossessed Motor Vehicles”, 31 s. Ill. U. L. J 281.
Commercial Reasonableness of the Sale
Even if notice for the sale is given correctly, a challenge may still be made that the sale was not commercially reasonable.
Both UCC Article 9 and the ORC provide definitions of commercial reasonableness stating that a sale is reasonable if the sale is made:
(1) In the usual manner on any recognized market
(2) At the price current in any recognized market at the time of the sale or
(3) In conformity with reasonable commercial practices among dealers in the type of property that is the subject of the sale.
Recognized market is defined as a market where the prices are not subject to individual negotiation, and the commentary gives the example of the New York Stock Exchange. In contrast, the commentary provides that markets where there are price guides or where items are disposed of through dealer auctions are not recognized markets. Based on the definitions and commentary, the only way to show a commercially reasonable sale is if it is in conformity with the practices in the area.
A search of Ohio cases provides no assistance in the area of eBay sales of repossessed motor vehicles. Based on the lack of case law, either few secured creditors are opting to sell their vehicles on eBay or the debtors have not been challenging the sales.
Most financial institutions probably remain wary to be the creator of new legal precedent for eBay sales of repossessed motor vehicles. Until Ohio courts definitively state whether eBay sales are private or public sales, determine the appropriate notice and explain sufficient advertising for online sales, financial institutions must realize that eBay sales may subject the organization to litigation on the reasonableness of the sale.
Jennifer M. Monty is an Associate in the Litigation & Defense department of the Cleveland office of Weltman, Weinberg & Reis Co., L.P.A.. She can be reached at (216) 685-1136 or [email protected]
Weltman, Weinberg & Reis Co., L.P.A., celebrating over 75 years of experience, provides comprehensive collection and litigation services to creditors throughout the nation including major banks & financial institutions, mortgage & lending companies, commercial creditors, government entities, insurance companies, credit unions, service organizations, medical and utility companies. Practice areas include bankruptcy, collection services, foreclosure/evictions/REO, legal action recovery, litigation & defense, probate, subrogation and corporate & financial services. The firm has offices in Brooklyn Heights (OH), Chicago, Cincinnati, Cleveland, Columbus, Detroit, Grove City (OH), Philadelphia and Pittsburgh.
Jennifer Monty works in the Litigation & Defense department in the Cleveland office of Weltman, Weinberg & Reis Co., L.P.A. Ms. Monty earned her B.A. cum laude in Communications from DePauw University (2000) and her J.D. from The Ohio State University, Michael E. Moritz College of Law (2003). A member of the Ohio State and Cleveland Metropolitan Bar Associations, Ms. Monty is licensed in Ohio and is admitted to practice before the U.S. District Court (Northern District of OH). Ms. Monty has been published in the Employee Relations Law Journal and the Pennsylvania Association of Community Bankers publication, Transactions.