In my line of business – asset repossession and liquidation – I don’t always walk in lockstep with the prevailing sentiment regarding the economy. My point of view is from the reverse side. 

When the economy started to turn down in the fourth quarter of 2006, it was the asset and equipment managers who spotted the first substantial cracks. We were also the ones who helped recover and redeploy assets in the aftermath. There are many of us who have been on the lending roller coaster for a long time, and our experienced perspective on the current state of the industry can be helpful while making the transition back to growth. We can provide practical guidance to our front-end counterparts who are eager to open the floodgates of lending once again. As a non-economist, my view is derived from what I'm seeing now compared to the last 25 years. I'm optimistic about the future, but that comes with some concerns about the present. 

A Changing Climate

Strategic changes can create vulnerabilities for lenders, and strengthening their defenses was essential to their survival during the downturn. Amid unavoidable layoffs, almost all the lenders I work with moved the core of their front- end sales teams to the back end in an attempt to retain key personnel. Given the terrible lending environment of the time, this was a forward-thinking, strategic change that effectively kept their front-end sales personnel employed and ready to sell again once things turned around. Now, the reverse shift is on, from assisting once – overwhelmed collection and remarketing departments back toward putting new deals on the books. And, as the center of gravity moves within lenders’ organizations, there is a simultaneous shift in the nature of the repossession and recovery market.  

Today's repossession climate is not what it used to be, and proven, deliberate and thoughtful techniques must be employed to ensure success – especially when assets are often hidden and lawsuits and litigation are prevalent. As a 25-year veteran of the repossession and remarketing business and dealing as I do with lessors, banks and bankruptcy trustees, I’ve gained a unique perspective on how this recovery compares to those in the past and how many aspects of it might be unique.

Typically, in recent years, a lender or lessor would request my help with a voluntary repossession for assets associated with a defaulted loan or lease. This asset could be anything, such as a truck, trailer, construction equipment or any sort of manufacturing equipment. The lessees were simply flat broke and out of business. Sadly, their entire financial life was gone. All their assets were under water, including their real estate. Lessees gave up and had no assets or business to defend. The result was a wave of high-volume yet relatively easy repossessions. 

That was then, this is now. The game has changed. 

Why Today Is Different

The length and severity of the recent recession has meant that even good, well-run companies now have their backs against the wall. Today’s repossession climate is challenging because we are no longer dealing with perennially unstable, wiped – out companies. Now, we’re talking about struggling companies with good reputations and good legal representation. These are savvy business people who have a career's worth of wealth and assets to defend.

And they’re going to use every tool at their disposal to remain solvent.

Remember, the lending climate up through the first quarter of 2007 – when it reached the pinnacle for frothy lending – was a time when, as we now see in retrospect, there was way too much money chasing way too few deals. Many lenders and lessees lowered their credit standards so they could continue to grow against fierce competition. We all know what happened after the rug was pulled out from underneath the economy. Entire industries were shaken out. The bad business models and poor financial operators were destined to fail.

And fail they did during the past few years.

For the most part, the weakest of these borrowers and lessees have been flushed out by now. If you weren’t a good business with a solid plan and weren’t really tight with your finances and flush with cash, there’s a good chance you’re no longer in business today.

But if you are still in business, there’s a good chance you’re coming to the bottom of your cash reserves right now. And this is why today’s repossessions are so complex. We’re getting into formerly good businesses with good fundamentals that are now just squeaking by. Long standing businesses have been through downturns before, so they won't take this one lying down and are prepared to take on lessors and lenders.

If there’s a chance they can get out of a deficiency because an asset wasn’t liquidated correctly or was repossessed with a breach of peace, they’re going to find the means to get out of it. Litigation, court orders, stonewalling, hiding of assets – all of these proven techniques of garden-variety loan skips are now being employed by previously respectable and conscientious companies. Businesses now have found that preserving capital often boils down to finding ever more sophisticated ways to hide or shelter an asset from repossession.

Today more than ever before, if you don’t perform repossessions the right way, it’s very likely your mistakes will be exploited by lessees and their attorneys. The only thing worse than a bad lease, charge-off or repossession is one that also puts you at the bad end of a lawsuit.

Brains, Not Brawn

Today’s successful asset managers recognize that these new challenges require skills gained from experience and a thorough understanding of the law. As lenders shift their headcount from the back end to the front, it's important to outsource asset management responsibilities to those repossession firms that add value to your team. 

My experience has taught me that consistent success in this field is the result of using your head and trusting the law to avoid physical confrontation. I’ve found that drama and repossessions are a bad combination. Those “repo man” reality shows on television might be entertaining for some, but not for me. They’re about as far as can be from the real world of repossession and asset remarketing as I know it.

I have turned down several requests from producers in search of dramatic repossession footage.    First, there wouldn’t be anything dramatic to see. Second, my experience has given me a fundamental respect and appreciation for the seriousness of the event. Asset repossession is not something to be taken lightly or viewed as entertainment in any way, shape or form. It is part of a serious legal proceeding that needs to be handled professionally, responsibly, and with the maximum amount of tact and respect. When you’re dealing with people’s livelihoods and reputations, especially after a downturn like we’ve just been through, people deserve to be treated professionally and with dignity.

Skillful Repossession Techniques

Skillful repossession today starts with knowledge of the law and a focus on safety and limiting liability. My goal is always to be careful but effective. And it takes hard work and intelligent skip-tracing to find hidden assets that don't want to be found.

One of our recent repossession cases can help demonstrate just how complex the business has become. In this case, a lessee operating at one specific job had 10 pieces of construction equipment and other mining assets leased by one of five different lessee companies. The leases were owned and cross-collateralized by three different lessors.

The machines were being used in a secure mine owned by a reputable third party, who granted us peaceful access but, in doing so, tipped off the lessee. Because access to a working mine takes hours (and, in this case, there was an overnight access delay), by the time we brought the first excavator up to the gate, attorneys for the lessee had met our truck with two bankruptcy filings. Rather than breaching the peace, we advised our client of the situation and were forced to leave without the assets. It was only a few days later that we returned to the mine to repossess the non-bankruptcy – related equipment. There was a high level of understanding and collaboration between our client's counsel, the lessee's counsel and the third-party mine owners, which resulted in an unemotional, productive recovery and remarketing of assets from a complex situation.

The right repossession and remarketing partners will share the same goals as their clients. We should all want to legally repossess and sell assets as quickly as the law will allow and for the most money possible, while also doing so at the lowest cost.  

Examples like this demonstrate why it’s critical to understand the UCC and any other state or local laws and ordinances so that the repossession is conducted professionally and error-free. Problems in the field can come up fast, and things can get out of control quickly if you don’t know enough to think before you act. 

Let’s face it: The majority of repossessions today are tough ones. Given what even good companies have been through during the recession, they are desperate to retain any assets they still possess. But by being aware and prepared to deal with the unexpected, creditors can limit their risk. They should be sure to use a repossession and remarketing partner who not only expects the unexpected, but also has the experience to make the most prudent choices in the field.