Can a Bank Recall an Auto/Boat Loan That Is Current and Is Not Past Due When the Collateral Is Worth More than the Loan?

If the borrower of an auto loan or a boat loan defaults on the payments, the lender has a right to recall the loan.  If the payment is not made, the lender can repossess the collateral – the car or the boat.  But the question is whether the loan can be recalled even when payments have been prompt.

Can a Bank Recall An Auto/Boat Loan That Is Current And Is Not Past Due When The Collateral Is Worth More Than The Loan?

There have been instances when the lender has recalled a loan when the value of the collateral was more than the loan amount due and that too when there had been no default.  The reason for this could be any of the following:

  • Insurance Requirements

If the loan contract requires that the borrower insure the car or the boat and if he has failed to do so, the lender can recall the loan.

  • Registration Requirements

Similarly, the contract may mention that the boat or the car needs to be registered.  If the borrower fails to comply with the registration requirements, the bank can recall the auto /boat loan.

  • Filing of Bankruptcy

If the borrower has filed for bankruptcy, the lender can safeguard his interests by recalling the loan.
Most of the time, the recall does not result in loan repayment.  The bank can then repossess the collateral subject to certain conditions:

  • There must have been a written mortgage.
  • The borrower has to agree to the repossession in writing or the lender should have a court’s order allowing repossession.

Loan recalls when payments have been prompt are very rare and happen only in certain specific situations.