Today's Trends in Credit Regulation

The Creditor's Burden
By Shelley B. Fowler

Under Iowa and many other states' laws, after repossessing a vehicle, the creditor must send the debtor and certain other parties a notice of the intended disposition of the vehicle. This notice must include a description of the debtor and the secured party; a description of the collateral that is the subject of the intended disposition; the method of intended disposition; that the debtor is entitled to an accounting of the unpaid indebtedness and states the charge, if any, for an accounting; the time and place of a public sale or the time after which any other disposition is to be made; a description of any liability for a deficiency of the person to which the notification is sent; a telephone number from which the amount that must be paid to the secured party to redeem the collateral is available; and a telephone number or mailing address from which additional information concerning the disposition and the obligation secured is available.

After the sale takes place, and the creditor receives less than what it is owed, the creditor is likely to sue the debtors for the remaining balance. What happens if the debtors claim that they should not be liable for the deficiency because they were not given the required notice before the vehicle was sold, but the creditor claims that it sent the notice? Who wins in this 'he said, she said' scenario? Let's look at what happened in a recent case.

Citizens Finance Co. held a security interest in Travis and Jessica Bickford's vehicle. Jessica and Travis divorced, and, under the divorce decree, Jessica was awarded the vehicle and was responsible for payments on the vehicle. When Jessica failed to make payments, Citizens hired another company to repossess the vehicle. The vehicle was sold at auction for less than the amount owed on the obligation, and Citizens sued the Bickfords for the deficiency. A default judgment was entered against Jessica. At the trial, Travis testified that he did not remember if he received any of the earlier notices but was sure that he did not receive the notice of intended disposition. Two loan officers speculated that the notices were mailed, but the employee who was responsible for sending the notices was not called to testify. The trial court dismissed Citizens's case, finding that it had failed to comply with the notice requirements of Iowa Code Sections 554.9611-13. Citizens appealed, arguing that it provided Jessica and Travis with the requisite notice of right to cure the default and notice of intent to sell the vehicle.

Iowa Code Section 554.9611(2) states that "a secured party that disposes of collateral ... shall send to the persons specified ... a reasonable authenticated notification of disposition." Therefore, according to the Court of Appeals of Iowa, when a secured creditor fails to send notice in a commercially reasonable manner, it cannot succeed on its petition to collect a deficiency. The appellate court acknowledged the trial court's finding that Travis provided credible testimony regarding his recollection of receipt of the various notices. The appellate court also acknowledged the trial court's finding that Citizens elected not to call as a witness the employee responsible for mailing the notices, but instead relied on the testimony of loan officers who merely speculated that the notices were mailed. Citizens claimed that it met its burden of showing that the notices had been mailed to Travis based on its routine practice of not scanning a document to its file unless it had been mailed to the proper parties. The appellate court disagreed.

With only the assumption that the notices had been mailed, the appellate court affirmed the trial court's conclusion that Citizens failed to satisfy its burden of proof that it acted in a commercially reasonable manner in sending the required notices to Travis.

At a minimum, a creditor needs to be able to present evidence that the requisite notices were mailed. Having on hand the employee whose responsibilities include mailing the notices at issue might have made the difference in this case. Not making her available to testify made it easy for the trial court to find that Citizens did not satisfy its burden of proof.

Citizens Finance Co. v. Bickford, 2014 Iowa App. LEXIS 534 (Iowa App. May 14, 2014).

Shelley B. Fowler is a Managing Editor of CARLAW, HouseLaw, PrivacyLaw, and Spot Delivery. Shelley can be reached at 410-865-5406 or by e-mail at

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