Here at Shenwick & Associates, an increasing part of our
law practice involves workouts of loans for borrowers with taxi medallions as
collateral for the loan. Over the past three months, we’ve noticed a
trend in which the bank or secured lender repossesses the taxi medallion(s)
when the loan is in default, instead of allowing the borrower to retain the
medallions during workout negotiations.
Under New York law, the security agreement and other loan
documents, lenders can repossess taxi medallions, which usually happens on
nights or weekends when the cab is not in use.
Typically, the Marshal will crowbar the medallion off the dashboard and
take the rate card. Although the cab is
not repossessed, if the cab is subject to a vehicle loan that is in default,
the cab may also be repossessed.
Some borrowers have asked us why the lenders repossess the
medallions without notice to the borrowers.
New York law and the loan documents signed by the borrower provide that
no notice is required for the lender to exercise its remedy of
repossession. And if borrowers were
noticed in advance of the repossession, lenders would run the risk of the
collateral medallion(s) being hid from the lender! Accordingly, if you own a medallion and the
loan is in default, you may want to park the taxi in a garage or in a location
other than on the street.
For borrowers whose medallions are in default, many workouts
will ultimately end with surrender or repossession of the medallion. In certain cases, surrender or repossession of
the medallion can end litigation or other collection efforts by the lender.
Taxi medallion loan borrowers and guarantors whose
medallion(s) were repossessed still run the risk of a deficiency judgment for
the balance of the loan by the borrower or a judgment against the guarantor. Some lenders may forbear from seeking a
deficiency judgment once the medallion is repossessed, but borrowers need to be
aware that loan documents allow for that remedy until the statute of
limitations has run. In New York, the
statute of limitations for a lender to seek the deficiency balance from a
borrower is six years. In many cases when
a lender obtains a deficiency judgment, we negotiate a discounted settlement by
threatening bankruptcy or by having the client file for bankruptcy.
Another factor that
repossessed taxi medallion owners must consider is relief of indebtedness
income pursuant to § 108
of the Internal Revenue Code. Simply stated, if a taxi medallion owner owes
a bank $1,000,000 and only repays the bank $500,000, then the tax law provides
that they must recognize $500,000 of income on their tax return. Borrowers need
to discuss this potential issue with their accountant or tax advisor during
settlement negotiations.
For more information about defaulted taxi medallion loans
and repossessed medallions, please contact Jim Shenwick.
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