How to Maximize Loan Recovery After Default: Obtain Possession of Personal Property Collateral Through Replevin
by Lucas B. RocklinDecember 11, 2020
Lenders Can Obtain Possession of Personal Property Collateral Through Replevin
Collateral for commercial loans often includes personal property of the borrower, evidenced by a security agreement and perfected through a UCC-1 financing statement filed with the Secretary of State. If the loan goes into default, the lender should consider pursuing a replevin lawsuit as part of its recovery plan.
Replevin is the cause of action to obtain possession of personal property. Hodge v. Hodge, 178 Conn. 308 (1979). For secured lenders, a replevin action is filed to obtain custody of personal property pledged as loan security. With possession of the assets, the lender can sell the property through a UCC secured party sale and apply the proceeds to reduce the loan debt.
In Connecticut, replevin (custody and control of the property) can also be sought at the beginning of the lawsuit (prior to judgment) through Connecticut’s prejudgment remedy procedures. This is advisable, as lawsuits can be protracted and personal property is subject to depreciation and risk of loss through borrower sale, transfer and hiding of assets. Seeking a replevin prejudgment remedy has the added benefit that it frequently results in settlement, due to borrower fear that the lender will disrupt or shut down its business should it take custody of its assets.
Procedure to Obtain Possession of Personal Property Collateral Through Replevin
Replevin actions are governed by statute in Connecticut. “The action of replevin may be maintained to recover any goods or chattels in which the plaintiff has a general or special property interest with a right to immediate possession and which are wrongfully detained from him in any manner, together with the damages for such wrongful detention.” Connecticut General Statutes § 52-515. To make out a prima facie case of replevin, the plaintiff must establish (1) the property to be replevied is “goods or chattels” as defined in § 52-515, (2) a property interest therein, (3) a right to immediate possession, and (4) the defendant has wrongfully detained the goods or chattels. Cornelio v. Stamford Hosp., 246 Conn. 45 (1998).
The lender must also comply with Connecticut’s prejudgment remedy procedures (Connecticut General Statutes § 52-278a et seq.) should the lender seek custody of the assets at the beginning of the lawsuit prior to judgment. This requires the lender to (1) file a prejudgment remedy application establishing probable cause that a replevin judgment will enter, (2) submit evidence that the lender is entitled to immediate possession of the goods, as well as their value, and (3) post a bond in favor of the borrower in the amount of at least twice the value of the property sought to be replevied. If the borrower contests the application, the court schedules a mini trial at which the lender has the burden to establish the elements in its application.
One notable exception permits lenders to obtain a prejudgment order of replevin without providing notice in advance to the borrower, which is if the lender can additionally demonstrate that the borrower intends to remove the loan collateral from Connecticut or is about to fraudulently dispose of the property. In this case, the lender can apply for an “Ex Parte” replevin prejudgment remedy, which the court can grant without notice to the borrower or holding a hearing on the lender’s application.
Maximizing recovery after loan default is the lender’s top priority. Included in the lender’s recovery plan should be pursuing a replevin action to reduce loan indebtedness by obtaining possession of and liquidating personal property collateral.
Disclaimer This article is for educational purposes only and to give you a general understanding of the law, not to provide specific legal advice. No attorney-client relationship exists by reading this article. This article should not be used as a substitute for legal advice from a licensed professional attorney in your state.