The law governing the repossession of collateral is similar to Kenny Rogers’ advice in his classic, “The Gambler.” Like the old-time card players in Rogers’ ballad, secured parties who utilize self-help to repossess collateral must know when to walk away . . . and when to run. Indiana, like most states, allows secured parties to use “self-help” to repossess collateral securing a defaulted debt. Often times, self-help is actually carried out by independent contractors, colloquially referred to as “repo agents.” A recent decision from the Indiana Court of Appeals serves as a reminder that secured parties can face liability if their independent contractor repo agents don’t know when to walk away.

In Horizon Bank v. Fabian Huizar, the bank hired an independent contractor to repossess a vehicle which secured debtor’s defaulted loan. Two repo agents discovered the vehicle sitting in the debtor’s driveway sometime after 10:00 p.m. As one of the agents spoke to the debtor, the other entered the vehicle and locked the doors. The debtor’s girlfriend attempted to enter the vehicle to retrieve her personal property, but the agent repeatedly locked the doors and refused to let her in. The debtor then instructed the agents to leave his property and told them he would not allow them to take the vehicle. The agent who was interacting with the debtor then threatened to involve the police if the debtor did not immediately turn over the keys to the vehicle. The debtor then instructed his girlfriend to relinquish the keys, and the agents left with the vehicle without further incident.

Approximately four months after the repossession, the debtor filed suit against the secured party, claiming it was liable for the actions of its independent contractor under the Indiana Deceptive Consumer Sales Act, the Crime Victims Relief Act and the Indiana Uniform Consumer Code. The debtor added a Fair Debt Collection Practices Act claim (for more discussion of the FDCPA, click here). Following a bench trial, the trial court entered judgment in favor of the debtor on all of his claims (the trial court subsequently vacated the FDCPA judgment as the lender was not a debt collector). An appeal followed.

On appeal, the court addressed several issues, including whether or not the secured party’s independent contractor subjected it to liability by unlawfully breaching the peace during the course of the repossession. Indiana Code § 26-1-9.1-609 allows a secured party to take possession of collateral “without judicial process,” but only if it “proceeds without breach of the peace.” Previously, in Census Fed. Credit Union v. Wann, the Indiana Court of Appeals held that if the debtor verbally contests the repossession, the secured party must immediately stop its efforts and seek judicial assistance.

The secured party asserted that its repo agents did not breach the peace during the repossession because they desisted when the debtor objected to their presence on his property and did not resume until the debtor voluntarily surrendered the keys to the vehicle. The Court disagreed, holding that the repo agents produced a “disturbance of the public tranquility or order” by refusing to leave when the debtor asked them to and by remaining in the vehicle and repeatedly locking the doors when the debtor’s girlfriend attempted to retrieve her personal property from it.

Ultimately, the secured party’s liability in Horizon Bank resulted from its agents’ inability to walk away from the repossession at the appropriate time. In no uncertain terms, the Court reaffirmed that in Indiana, the right time to walk away from a self-help repossession is immediately after the debtor objects and no subsequent consent will remedy a breach of the peace.