When a dealer sells off their paper to a finance company, most dealer finance agreements have a recourse provision that allows the finance company to demand that the dealer repurchase the deal if certain events occur. However, we often have defenses to repurchase demands and you may not have to give in to them! Watch this video for examples as well as some tips for repurchase and recourse provisions.
Below is a transcript of the video:
For dealers that sell off their paper to a finance company that purchases it, one of the things to consider as a dealer is what the recourse provisions are in that purchase contract, in the bulk purchase agreement, or in the dealer agreement that governs the relationship between the finance company and the dealer. Most have a recourse provision that allows the finance company to demand that the dealer repurchase the deal.
For example, a dealer sells a deal to a finance company for $20,000. The finance company pays the dealer and then the customer sues for some issue. If it’s covered by the dealer agreement by the repurchase
clause or recourse, it may be listed as either. They mean essentially the same thing in these transactions, but recourse or repurchase, then the finance company could actually demand that the dealer buy it back. A lot of dealers don’t have the funds to do that.
It’s important to keep a slush fund available to repurchase while you’re in a repurchase timeframe and until that repurchase time frame ends, whether it’s a two-month recourse, three-month recourse, 90-day recourse, whatever it is, keep that money handy in case there is a recourse. Some of them have unlimited recourse for certain things like breaches of warranties. It’s important to note that the recourse provisions most of the time exist in a dealer finance arrangement and that finance companies, they don’t hesitate to enforce those recourse provisions if a claim is filed. Some will not allow recourse for just a claim, others require proof, but that’s a legal inquiry and a contractual inquiry that depends on the contract itself.
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