Rights and Responsibilities After Auto Repossession

So, you have come upon unfortunate circumstances and can no longer afford to pay your auto loan payments.

As you already know, the lender has the right to repossess the car once you begin to miss payments. And they are likely to act upon that right within a couple of months of non-payment, or possibly even within a matter of days if the lender specializes in loans for people with poor credit - such as a buy here/pay here dealership.

But what happens once the vehicle has been seized by the lender? Do your rights and responsibilities end once the lender has taken back the car? In many cases, the answer is no. Once the lender seizes the vehicle, they have the right to either keep it as compensation for your debt or sell it in a public or private sale.

In some states, the lender is required to notify you of what they plan to do with the vehicle. Some states’ law requires that you are notified of a public auction sale so that you can attend and participate in the bidding if you choose to. If the vehicle will be sold privately, you may have a right to know the date of the sale.

Keep in mind that if you hope to buy back your car, it’s likely to cost more than it would have if you had just kept up with the payments. This may prove to be very difficult for someone who had a hard time with making their loan payments on time. In addition to the amount owed on the loan, the lender can tack on additional expenses related to seizing the vehicle, such as repossession costs, storage fees, and attorney fees.

A common misconception is that once the car is repossessed, the borrower has no further liability for the loan.

But in most states, the law allows the lender to sue for a deficiency judgement as long as they followed the legal procedure for auto repossession. If they don’t follow procedure, wait too long to sue, or don’t sell the vehicle for a reasonable market price, the borrower may be able to fight the judgement suit in court.

The difference between the sales price of the car once the lender seizes it and resells it and the balance due on the loan (plus certain expenses related to ending the loan contract or seizing the vehicle) is called a deficiency. For example, you owe $5000 on the loan and the lender sells the car for $4000. The lender may sue you to collect the $1000 deficiency and any expenses allowed by law.

But similarly, the lender would owe you the difference if they sell your vehicle for more than the amount owed on the loan plus expenses related to seizing the vehicle. This scenario is less likely to happen due to interest charges that cause negative equity and repossession expenses. And if you ever have a hard time making payments and find that your car is worth more than you owe, the best option is to sell it yourself before it gets repossessed.

To learn more about your rights and specific repossession requirements in your state, contact your state Attorney General (www.naag.org) or local consumer protection agency (www.consumeraction.gov).

Repossession laws vary by state. This article is for informational purposes only and is not intended as providing legal advice.



Source:
Federal Trade Commission