What You Need to Know about the PPSA
The PPSA stands for the Personal Property Security Act. It is an act created by the Ontario Government to protect the people involved in both sides of a transaction where lending and borrowing are involved. On one side this includes banks, leasing companies and businesses that offer in-house financing, and on the other side it involves the people who borrow the money or lease the goods. To use the official terms, the Act protects creditors, lenders, and lessors on one side, and borrowers and lessees on the other.
When credit is extended by someone, for example a car dealership that wants to help a customer obtain a car, this lending arrangement carries a risk. How does the dealership know that the customer will pay off what is owed on the car? What if the customer simply drives away with the car and disappears?
For the dealership to feel secure in the transaction, the PPSA gives the dealership the legal right to seize and sell the borrower’s asset(s) to cover the debt owed in the event of default. This is especially important when the lender is unsecured, meaning they do not have the same strong legal rights that, for example, a bank has with a mortgage. (Lending is a complicated business and there are lots of levels to it.) Generally, banks and branches of the Government, like the Canada Revenue Agency, have the greatest power when it comes to recovering monies owed by people, as you can see when you look at the terms of a mortgage, or any taxes owed to the CRA.
The clearest definition the PPSA is this: The PPSA gives an unsecured creditor the right to seize and sell assets of a debtor. So, when purchasing a vehicle or some business equipment, the lender would establish a lien on some of the borrower’s assets as security. This item (or items) can be referred to as collateral.
The PPSA Registration System: PPSR
To avoid the confusion that might occur if a borrower used the same asset as collateral for more than one loan, the PPSA provides a personal property registry system known as the PPSR. This not only registers property that has already been assigned as collateral in a borrowing relationship, but it also provides additional protection for borrowers by outlining the terms of the loan/lease and the amount owed, as well as the various required notice periods and other particulars. This is a good way to protect the rights of all parties involved.
Additionally, the PPSR provides a publicly accessible database for inquiries by any interested third party. The system provides full disclosure of registered personal and business liens, complete with the lien claimant’s name, the effective date of registration and expiration, and the description of any collateral. It is easy to search an owner’s name and to learn about any PPSA or similar registrations that have been filed against that person’s name. Searches can also be done using the vehicle identification number (VIN) of a vehicle. It is important for anyone performing a search to have access to as much information as possible, including the borrower’s legal name, alias, date of birth, address, and a detailed description of the proposed collateral.
The PPSR assigns registration numbers and dates, and officially establishes priorities between entities with competing interests in the same personal property. If a borrower illegally affects the collateral, perhaps by trying to sell it, a lien claim will ensure that registered liens are enforceable, preventing the sale.
What the PPSA Does not Cover
The PPSA does not oversee land or real estate. It also cannot protect a borrower from exorbitant interest rates or other onerous terms within a contract. It simply helps the parties conform to the terms of the agreement. So, as with all contracts, the parties must be cautious and far-sighted before signing.
The “Self-Help” Remedy
One of the benefits of the PPSA is that it allows creditors the right to seize the collateral without having to go to court and obtain documents from a judge. It also enables a creditor to search the registration system and determine if a prior claim exists on an item of collateral before making a lending decision.
Once a loan agreement has been issued, it is especially important that the creditor registers the interest in the borrower’s collateral, (called a security interest) under the PPSA, so that a subsequent lender cannot also register a potentially superior interest in the subject item, giving them the rights to that same asset.
When a Borrower Defaults
Obviously one of the main reasons for the existence of the PPSA is to protect a lender from a borrower who defaults. If this happens, lien claimants (lenders) that have registered the lending arrangement under the PPSA now have the right to arrange seizure to take possession (repossess) the assigned collateral. After the appropriate notifications have been sent and the appropriate waiting periods have expired, that collateral may be liquidated by public or private sale.
The Ontario Bailiff Act stipulates that only a licensed Ontario Bailiff may repossess the collateral on behalf of a lien claimant. A qualified Bailiff company will also assist in observing all PPSA regulations, sending out all required notices, and advising all interested parties about arrears, costs, and terms of redemption as well as expiration dates leading to the sale of the collateral.
The borrower who has defaulted and whose collateral has been seized still has a legal right to “redeem” and get the collateral back, but the lender (creditor) now stipulates the terms they are willing to accept for the return.
Protecting Yourself Outside the Scope of the PPSA
Although the PPSA sets up rules for defining and protecting a lending relationship, there are things a lender should do to further secure themselves prior to making a lending decision. These include checking references, asking for copies of insurance documents, driver’s license, birth certificate, passport, and similar legal documents that provide tangible proof of the validity of the borrower.
Also, check that the collateral actually exists! Searches alone will not tell a lender what condition or state of repair the collateral may be in, or if it even exists, except on paper.
Napier Bailiffs Can Help
Call us to determine if your circumstances warrant a PPSA registration or seizure. We are highly regarded by lenders and borrowers as a firm that helps oversee the sometimes-difficult outcomes of borrowing relationships. We are able to give valuable advice prior to any action being taken as well as being able to carry out a process of recovering assets correctly.
WHAT IS AN ONTARIO BAILIFF?
There are two types of bailiffs in Ontario
- Provincial Correctional Service Bailiffs who escort prisoners, and
- private sector bailiffs.
Napier Bailiffs Ltd. is a private corporate Civil Enforcement Agency appointed by the Ontario Government to act on behalf of business, individuals, or municipalities to seize or repossess property and Commercial Landlords to evict Tenants. Pursuant to regulations within the Personal Property Security Act, Repair Storage Lien Act, Commercial Tenancies Act and Municipal Tax Act.
DISCLAIMER: We are not a law firm, the information provided is not intended to substitute for legal advice. Always seek appropriate legal counsel for your unique circumstances.