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If a consumer defaults on an installment contract or other purchase agreement in which legal ownership of the item purchased remains with the financial institution, the lender can choose to repossess the item. In order to recover the amount still owed, and depending on the terms of the agreement, the lender can sell the item in a repossession auction. The repossession and resulting auction are usually subject to legal requirements that vary by country and state. The terms of the original purchase contract may also specify the process that the lender must use to auction the repossessed property. In some cases, homes, cars, and other valuable property sell for considerably less than their market value in a repossession auction.
If the money realized by auctioning the property is less than the amount owed, the purchaser is usually responsible to the lender for the difference. In cases involving repossessed homes or automobiles with large outstanding balances, consumers may be sued by the financial institution seeking to recover this deficiency. In cases involving non-recourse loans, property pledged as collateral for a loan may be sold at auction; however, the lender may not pursue the debtor for any resulting deficiency.
In many jurisdictions, auctions are conducted by a private auctioneer who assembles a number of repossessed vehicles or other items to sell at the same time. These auctions are usually advertised in local media as well as on the Internet. The auctioned vehicle or other property is usually sold without any warranty, and, in most cases, the auctioneer requires full payment in the form of cash or a cashier's check. Due to these risk factors, repossessed property is often sold for much less than its market value.
In order to sell a home or other real estate that is in foreclosure at a repossession auction, the lender is usually required to follow certain procedures detailed in the purchase agreement. These can include notices to the borrower advising him or her of the impending repossession auction and the debtor's potential responsibility for any deficiency. As a part of the foreclosure process, the lender can be required to publish legal notices in a newspaper. In some jurisdictions, the laws governing repossession require that the property be auctioned by a marshal or other civil court official. As with repossessed vehicle auctions, homes sold at a repossession auction typically are sold without warranty and full payment is usually required immediately after the auction.
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