• That’s My Property: Conversion of Security Interests
  • May 18, 2011 | Author: Connie M. Parker
  • Law Firm: Klein, DeNatale, Goldner, Cooper, Rosenlieb & Kimball, LLP - Fresno Office
  • Conversion is the wrongful exercise of dominion over another’s personal property.  Borrowers or non-borrowers who wrongfully withhold personal property from a creditor who is entitled to the personal property under a security agreement may be liable for conversion.

    The creditor must file a lawsuit to seek damages for conversion within three years of the conversion to be timely.  The date of the conversion is usually the date the borrower defaulted on the loan.  The creditor is entitled to possession of the security interest upon default.  If the debtor interferes with the creditor’s right to repossess the security interest after defaulting on payment, a conversion occurred.  In contrast, the statute of limitations for breach of a written contract is longer and begins four years from the date the borrower defaulted on the loan agreement.

    Typically, the measure of damages for conversion is the value of the personal property at the time and place of the conversion.  If it was the borrower under a security agreement who converted the security interest, then, by statute, the measure of damages can be no greater than the amount secured by the lien. 

    Other monetary loss the creditor may recover for conversion of a security interest is fair compensation for the time and money expended in pursuit of the property.  Hence, if the creditor hired an agent to repossess the security interest or an investigator to help locate the security interest, those expenses may be recoverable if they are a reasonable amount.  The creditor is unlikely to recover attorneys’ fees, however, based solely on a statutory claim.  There needs to be an enforceable attorneys’ fee provision in the loan or security agreement for the creditor to obtain an award from the borrower for the creditor’s attorneys’ fees in most circumstances.

    In the less common situation where the value of the security interest exceeds the amount secured by the lien at the time of the conversion, the creditor and his attorney should assess whether third-parties, i.e., parties outside of the security agreement, may be liable for the conversion.  For example, did the borrower wrongfully give away the security interest to a family member?  Is the security interest located on another’s real property and the landowner will not allow the creditor onto the property to repossess the security interest?  These third-parties could be liable for the value of the security interest notwithstanding what the borrower owes under the loan agreement.

    If you are a lien holder and the borrower is in default on your loan and non-cooperative in surrendering your security interest, the attorneys at Klein, DeNatale, Goldner can assist by writing a demand letter to the borrower and responsible parties, pursuing legal action on your behalf, and seeking appropriate monetary damages.