Lenders accuse towing companies of ripping them off
Daily Business Review
May 26, 2010
The past several months have seen a growing trend of banks and towing companies squaring off. Banks, for example, are alleging that towing companies are violating laws and profiting by selling cars that have been abandoned while having a bank lien placed on them that was either overlooked or ignored.
In one scenario: A car is abandoned and towed away. The towing company will notify the borrower, who does nothing, and the lien holder (the bank) of its intent to lien the asset.
If the bank does not claim the vehicle within a short time window, the tow company "sells" the vehicle, sometimes to themselves or to an accomplice.
The new "owner" then applies to the state Department of Highway Safety and Motor Vehicles for a clean title extinguishing the bank's lien. This can be profitable for tow companies, who in some cases are getting new luxury Audis and BMWs, bank lenders and their attorneys complain.
"The bank is losing its collateral," said Richard Petrovich, an attorney at Tripp Scott in Fort Lauderdale who has seen a growing number of such cases. "You can imagine the case of a brand new Mercedes. That's a problem. That's a lot of money out the door."
While some "lost" vehicles can be attributed to mundane factors - a certified letter arrives at a lender and is misplaced or backed up in the bureaucracy, or a lender's representative procrastinates or fails to follow up on claiming the vehicle, the towing industry itself concedes that wrongdoing is a serious problem.
"I will tell you, there are scams," said Mike Seamon, executive director of Professional Wrecker Operators of Florida, the industry's Orlando-based trade group. "I can send a certified letter and make it come back to me. Once it comes back, I can change what was on the inside of that letter in a sealed envelope. I know all the tricks."
There's the one where the tow operator pretends to tow the car to another state in order to run up huge invoices.
"They get carried away - I've seen $6,000 bills, all kinds of things. I get those phone calls from the financial institutions - that's a scam," Seamon said. "The car was never towed."
Seamon, whose group works with law enforcement officials and regulators to weed bad actors out of the industry, said both vehicle owners and towing companies conjure up scams - often working in tandem.
"We have lots of gypsy towers in South Florida," Seamon said. "The problem is enforcement. Often tow scam operators are not even arrested. You hear it's because the jails are overcrowded, the courts are overcrowded, there's not enough money for all this."
Petrovich recalls one case in which a bank client sought to recover a towed luxury car on which it had a lien.
"You file a lawsuit under certain chapters that allows you to post a bond and then the tow company must release the vehicle upon the clerk of court issuing a certificate of release," Petrovich said.
"Just last month, we posted a $5,000 bond on a tow charge - now that's a pretty high tow charge. It was broken down to $460 for towing and storage and $4,600 for 'other charges.' Other charges were defined as 'other.' We filed our lawsuit to get the car back under the statute that allows us to post a bond and immediately get our collateral back."
Despite a certificate of release from the clerk of court, Petrovich said, the company's owner refused on the grounds that there were charges above and beyond the lien amount that he was entitled to.
"He asked for another $500 or $600," Petrovich said. "We gave him a few hundred more dollars and had our own tow company move it out of there and return to the bank."
If a vehicle is towed - whether it's by a private company, law enforcement or even at the request of the owner - the tow operator within seven working days has to notify by certified mail the owner, the lienholder if there is one and the insurance company if that information is available.
Models from 2008 or more recent cannot be sold any sooner than 50 days. Cars that are older than three years have to be kept a minimum of 35 days before they can be offered for public sale. A notice has to be published in a newspaper 10 days prior to the sale.
If no one buys the vehicle then the tow operator either must get a title or certificate of destruction in their name before that vehicle can be moved to another location.
If the lien holder is a bank, the certified letter will go to them and someone has to sign for it. If the letter is undeliverable it is returned to the tow operator. If the letter doesn't go out in seven days the lienholder is not responsible for any storage charges.
"What happens in the real world? A secretary may misplace or forget about the letter, and the vehicle gets sold," Seamon said. "Sometimes the insurance company forgets about it. I'll tell you who is famous for not following up on stuff is car rental companies. If a person procrastinates in getting the car, that's a problem."
He said if everything was done legitimately, "you have the right to see all the paperwork in Tallahassee - it's pubic record. If you can find something wrong with it, you can rescind the title. If everything is done right, the owner has lost the car."
Petrovich said negligent lien searches by both towing companies and government entities can be as big a problem as outright scams.
"A city failed to identify us in an asset-forfeiture case involving a new Mercedes," he said. "One boat was titled out of Ohio and they didn't search Ohio and the boat was retitled even though the boat had a decal that said 'ship's registry Ohio.'?"
What recourse does a bank have when a car is sold from under its lien?
"You really can't repossess a boat or vehicle that has been retitled in someone else's name," Petrovich said. "Normally what a bank will do is bring an action for replevin. It's an action that asks the court to bring you back into possession of your asset."
However, you have to assure the court that the asset is within its jurisdiction.
"If you sue in Miami, you have to tell the judge that the car is in Miami as well. If you don't know where it is, you're stuck having to sue for damages. The main allegation is you failed to find me. You didn't follow the statute so you caused me damages by selling the vehicle."
For some banking attorneys, litigation is not a desirable recourse.
"I try to do a practical look at it first. One of the things my client does is evaluate what the loan value of the vehicle is, because sometimes you have a situation where storage charges mount up," said Gary Carman, a banking attorney at GrayRobinson's Miami office. "Then the question becomes is it worth paying $2,000 or $3,000 storage charges to redeem the car when the value of the car may not be there."
Carman said the community banks he represents rarely litigate the issue.
"We have negotiated a reduction in the money that they [the towing company] are asking and bought the car," he said. "Because to go through the process is lengthy. We notify the borrower if we can find them, but typically the buyer has decided to just abandon the car. We've had situations where we've picked up the vehicle, we've paid someone $750, we've paid people $1,500 because the car is worth that. To go through a long process, we just don't do it that way."
Carman said the problems are mounting as borrowers walk away from cars they can no longer afford.
"You see cars picked up and just towed to these lots and basically they're kept," he said. "But to fight the legitimacy or illegitimacy of it is very expensive. The decision is what's the value of the car? I try to find out what the condition of the car is. They don't tell you the car's been damaged. I'll send a bank employee there and they'll tell me the car is totally smashed. Well, then I don't want the blessed thing."
He said one of his clients is trying to litigate the issue and "it's taking them forever. It's just not the way I try to approach it."
Carman said about the only time he gets involved in litigation is not with a tow truck but when the government confiscates something.
"Or the sheriff of Alachua County calls you and says 'By the way, your borrower is sitting in jail because he's got a marijuana charge and we've got the car. Do you want it?'?"
Wayne Tompkins can be reached at [email protected] or at (305) 347-6645.