In a case involving the defunct Norlarco Credit Union, the Colorado Supreme Court recently ruled that the financial institution could not sue to recover the balance on a defaulted car loan.
According to the ruling issued Monday, Daniel Shane Hassler obtained vehicle financing through a security agreement with Account Brokers’ predecessor in interest, Norlarco.
Hassler defaulted on the loan, Norlarco repossessed the vehicle and later sold it at auction. The credit union used the proceeds to pay off the balance of the loan. However, the amount did not cover the entire balance. Norlarco transferred the remaining balance to Account Brokers, which sued Hassler.
While the suit came less than six years after Norlarco sold the vehicle at auction, the litigation was filed more than six years after the repossession and after Hassler defaulted on the loan.
An earlier ruling by a lower court sided with Account Brokers saying the statute of limitations did not have an impact on the claim until Norlarco sold the vehicle.
Earlier this week, the Colorado State Supreme Court reversed that ruling. The court said under Colorado law and of the parties’ security agreement, the present debt became due when it was accelerated following Norlarco’s repossession of the vehicle and demand for the loan’s full payment. The court further said that these actions occurred more than six years before the initiation of the present suit.
If a security agreement is to be repaid in installments, the ruling said, the payment is due on the date that each installment is missed.
By repossessing Hassler’s vehicle in October 2001 and seeking the loan’s balance shortly after that request, the court’s ruling said the Norlarco invoked the security agreement's optional acceleration clause. Norlarco filed its collection claim against Hassler on May 7, 2008, more than six years after the repossession, an action that is barred by the statute of limitation, the court said.
The NCUA placed Norlarco into conservatorship in 2009 due in large part to the mismanagement of its residential loan program. Its assets were later sold to the $1.1 billion Public Service Credit Union in Denver.