Repossession Laws on Rent-to-Own Companies in Michigan

A rent-to-own transaction allows a buyer to take possession of a product without paying the full purchase price. The buyer pays the balance of the purchase price in periodic installments and acquires full legal ownership only after the full purchase price is paid. If the buyer defaults prior to full payment, the seller can repossess the item. Michigan has enacted special provisions to protect buyers who default on rent-to-own agreements.

Ethical Concerns

Michigan has enacted buyer protections applicable to rental purchase agreements, because this type of transaction has been used to exploit low-income lessees. Some vendors have structured transactions to encourage the lessee to default near the end of the installment period -- by providing for a large "balloon payment" as the final installment, for example -- so that the vendor can keep all rental payments made and still repossess the item so that it can be rented to someone else.

Prohibited Provisions

Michigan law prohibits rental purchase agreements from allowing a vendor access to the lessee's home to repossess items subject to a lessee default. It also voids any contractual provision that purports to waive any claims or defenses that the lessee may otherwise be able to assert in a lawsuit. These provisions are designed to prevent vendors from forcibly entering a lessee's home for the purpose of repossessing an item and to prevent them from gaining an unfair advantage in any lawsuit that may arise from a repossession.

Reinstatement

If the lessee returns an item to the vendor after missing fewer than four periodic payments, Michigan law allows him to reclaim the item and retain his original contractual rights as soon as he pays his overdue balance plus a reinstatement charge equal to the lesser of $5 or 5 percent of the overdue balance. The reinstatement fee must be waived if the lessee has only missed one payment. If the lessee misses four payments, he loses the right to reinstatement and cannot reclaim the item unless the vendor waives his right to repossession.

Repossession Procedure

Normally, a vendor must obtain a court order to repossess an item subject to a lessee payment default, and a judicial officer must execute the repossession. If the vendor auctions the item to pay the lessee's outstanding balance and auction proceeds are insufficient to retire the debt, the vendor may sue the lessee for the remaining debt.