Who Gets Bling in Repo

The automotive aftermarket industry is booming. This annual $31-billion business includes custom bling — accessories such as aftermarket sound systems, wheels, spoilers and in-car DVD players.

Not everybody can afford to buy these goodies outright or has the option to buy them on credit. To accommodate these folks, segments of the aftermarket industry offer to rent such equipment — and even rent to own.

But all is not peaches and cream. Imagine that you have financed a car, the buyer defaults on the loan and you want to repossess. Now, imagine the buyer has rented custom wheels for the vehicle from a third party. You have a security interest in the vehicle, but the seller/renter of the funky wheels has notified you that he wants them back or fair-market value reimbursement upon repossession.

What should do you do?

A few years ago, the law defined “accessions” as an integral part of the original collateral and not easily detached. A majority of courts followed the rationale that wheels were not an integral part of a vehicle and therefore could be conveniently detached from it.

Thus, the seller/renter of those fabulous wheels would have had priority over the holder of the security interest in the vehicle.

Fortunately, common sense struck.

The law was revised to include a special-priority rule. It gives the holder of a lien noted on a certificate of title priority over other lienholders. The law took effect July of 2001.

It now matters if the transaction involving those custom wheels is a financed sale or a lease. The holder of the security interest in the vehicle would be stuck with a less favorable result if the transaction is a true lease or a rent-to-own transaction.

If it is a financed sale, you will not have to notify the seller/renter of the custom wheels before you repossess or sell the car, provided that your buyer used the vehicle primarily for personal, family or household purposes. (You would have to give notice to the seller/renter of the custom wheels in the case of a vehicle used primarily for business purposes.)

After the sale of the repossessed vehicle, the money should be applied first to any sale expenses, second to what is owed you as the vehicle-secured party, and third, in certain circumstances, to other subordinate interests, such as the interest of Mr. Bling seller.

However, if the transaction is a true lease or rent-to-own transaction, the lessor of the custom wheels is entitled to remove them.

The lessor would be required to reimburse you only for “the cost of repair of any physical injury, but not for any diminution of value of the whole caused by the absence of the goods removed or by any necessity for replacing them.” In other words, if the lessor removes his bling without damaging the ride, he doesn't owe you squat.

Note that the law doesn't require you to remove the wheels and send them to the lessor, nor return the vehicle to the lessor so he can remove the wheels. But you must allow him to remove the wheels at wherever the vehicle is being held.

If neither the lessor nor the customer returns the original wheels, you may install new ones and include the expense and installation fees in the cost of disposition charged to the borrower.

The peachy news: if it's a financed sale or lease intended as security, you have priority. The bad news: if it is a true lease or a rent-to-own transaction, you'll get creamed — the lessor has priority to the extent that he can remove the custom wheels. And you are left with a bling-less car.

Copyright 2005 CounselorLibrary.com, all rights reserved. A version of this article appeared in Spot Delivery. Reprinted with express permission.