Peter N. Tamposi, Esq.
Frankly, the guns and money are more likely to be effective than the lawyers these days. In the realm of lease enforcement, getting legal relief takes even more time and diligence and sometimes feels like you’re hitting your head against the wall. Courts across the land ground to a halt this spring when the Virus struck.
Most courts at the trial level manage a combination of criminal and civil cases. Since the criminal matters are more time sensitive (because the constitution requires timely justice) the civil matters have taken a back seat as the courts start to reopen. In the northeast we’re seeing requests for injunctive relief (such as for repossession) taking four to six times what it used to. And, when you can get before a judge, it’s likely to be via zoom or on the telephone. If you have to enter evidence, particularly testimony, it can be a nightmare.
Putting aside the question of when you can get to court, many of my clients are grappling with the question of whether it’s even fair to get a civil judgment or to replevy financed equipment. So many businesses have been shuttered for much of the year, even the best-intentioned gym owner or hospitality provider have seen revenues plummet. Who have they prioritized to pay? They have mostly put their landlords, their employees, and utilities at the top of the list: not their lessors. Let’s face it, even in good times, the lease bill is rarely on top of the pile.
The question of whether it’s fair to repossess or legally collect in these times is not an esoteric one either, but something judges may consider, particularly when you seek equitable relief such as repossession. When a court adjudicates requests for repossession, it often must consider a balance of harms between the lessor and lessees. And if the latter has been out of business for an extended period through no fault if his own, that may weigh in his favor. In other words, COVID will take the witness stand in many cases.
But let’s look the bright side, shall we? The Virus has caused many of us to rethink the way we do business in every industry. Lease enforcement should be no different. In his recent excellent article on strengthening digital strategy, Vladimir Kovacevic noted how “the equipment finance industry has been traditionally slow to embrace new technologies, relying on legacy philosophies and outdated systems. For many, COVID-19 has exposed critical technological gaps in lender business tools, systems and processes.” While he was largely discussing technology developments in lending and on-line marketplaces, there is no reason why lease enforcement shouldn’t take this opportunity to modernize itself.
But how do you drag an industry that hasn’t changed in over 50 years into the 21st century? It’s simple: control your product (i.e. your collateral) like the utilities and cell phone providers do. When you can shut down the equipment you’ve financed as soon as there’s a payment default, you can avoid having your lessees consistently paying late or prevent them from to getting to the dreaded 60+ days in default category. You can also largely avoid going to court. Companies like Spireon and the like have been doing this for decades for auto and truck portfolios. That technology is finally winding its way into the fixed assets through companies like Lease Security Systems (https://get.blokboxnow.com/) which uses wireless technology to disable equipment in the event of a default. Some machining and milling equipment manufacturers also insert code in their software that requires periodic updates to operate which they will only supply if there’s no payment default – but these are few and far between and require a unity of lender and manufacturer. Only when these technologies are broadly embraced and equipment agnostic will we see a real change in the collections industry. Until then it’s business as normal (or “painful”, some may say).
When you can prevent your borrower from getting too “far over their skis” on payment, you can avoid altogether the hassle of litigation. Q: what’s the best kind of lawyer? A; the one you don’t need to hire. Don’t tell my friends at the bar I wrote this, but avoiding the world’s most expensive indoor sport (i.e. litigation) is in every lender’s best interest. Once you take control of your collateral, the balance of power will shift in your favor.
Best of luck.
