While not usually as dangerous or exciting as it sounds, aircraft repossession is a real thing and is more common than most people think. Most aircraft repossessions are executed entirely on paper by judges, lawyers, and bankers, as opposed to daring repo agents as seen on reality television. While the stealth repossession operation makes for a good story, paperwork is the reality.
Therefore, it is important to have all the necessary repossession documents in proper form and duly filed, especially in consideration of the FAA.
The most common aircraft repossession situation involves a debtor who has taken out a loan to buy an aircraft and cannot make the required payments to the lender. In this situation, the aircraft is the collateral for the loan. So, when the debtor stops making the loan payments, the lender takes the aircraft back so that they may sell it and recoup the lost loan amount. Under these circumstances, the repossession is acting as a release of lien and as a transfer of title.
The repossession is acting as a release of lien because it is a statement from the lender stating that the aircraft, as collateral, has been repossessed from the debtor in lieu of loan repayment. This action thereby extinguishes the lien on the aircraft created by the loan. Accordingly, the repossession documentation is important, as it is the instrument through which title to the aircraft is cleared. Clear title to the aircraft is critical to both future lenders and future buyers. Without clear title, future lenders will be unlikely to grant a favorable loan and future buyers will be unwilling to pay market value.
The repossession is acting as a transfer of title because it is likely the only proof that the aircraft was physically and legally conveyed from the debtor to the lender. Due to the nature of repossessions, there will probably not be a bill of sale. This makes documentation incredibly important because the FAA requires sufficient proof of ownership to register an aircraft, and in this case, the repossession documents will be that proof of ownership. If the repossession documents are not properly prepared and filed, then the chain of title could appear to be broken in the FAA records, which would lead to issues with future registration and transfers of title.
Given the importance of repossession documents, along with their somewhat ambiguous nature, it is essential that they are formed and filed properly. Missteps in any part of the repossession process can snarl title to the aircraft, hindering future transactions. Accordingly, if you find yourself involved with the repossession of an aircraft and have questions, give us a call and we will be glad to help.
