Have you been the subject of an auto repossession or a home foreclosure? There are numerous laws in place to protect you even if you owe part or all of the money. There are too many to detail here, but if you call us we will be happy to answer some of your questions.
- Vehicle Repossession
- Selling the Repossessed Vehicle
- Personal Property in the Repossessed Vehicle
- Paying the Deficiency
When you finance or lease a vehicle, if you don’t abide the terms of the contract, the creditor often has a right to possession of the vehicle. For instance, if you fail to make timely payments, or in some states, fail to maintain adequate insurance, the creditor may repossess your vehicle without going to court and without warning you in advance. Your creditor also may be able to sell your contract to a third party, an “assignee”, who may have the same right to seize the car as the original creditor.
Depending on which state you live in, your creditor can repossess your vehicle as soon as you default on your loan or lease so long as the car was collateral for the loan. Look to the terms of your contract to see what constitutes a default. In many circumstances, failure to make a timely payment will constitute a default. However, if the creditor agreed to change your payment date, the terms of the original contract may not apply. Because oral agreements are difficult to prove, the agreement to change the payment date should be in writing. Additionally, you may not be in default if the creditor made a “pattern or practice” of accepting your late payments without objection.
Once you are in default, the laws of most states permit the creditor to repossess your car at any time, without notice, and come onto your property to do so. But when seizing the vehicle, it is unlawful for the creditor to “breach the peace.” In some states, that means using physical force, threats of force, or even removing your car from a closed garage without your permission.
Should there be a breach of the peace in seizing your car, your creditor may be required to pay a penalty or to compensate you if any harm is done to you or your property. A breach of peace also may give you a legal defense if your creditor sues you to collect a “deficiency judgment” — that is, the difference between what you owe on the contract (plus repossession and sale expenses) and what your creditor gets from the resale of your vehicle.
Selling the Repossessed Vehicle
Once your vehicle has been repossessed, your creditor may decide to either keep it as compensation for your debt or resell it in a public or private sale. Depending on which state you reside in, your creditor must let you know how it is disposing of the vehicle. For example, if the car will be sold at public auction, state law may require that the creditor tell you the time and place of the sale so that you can participate in the bidding. If the vehicle will be sold privately, you may have a right to know the date the sale will take place.
In any of these circumstances, you may be entitled to “redeem” — or buy back — the vehicle by paying the full amount you owe (usually, that includes your past due payments and the entire remaining debt), in addition to the expenses connected with the repossession, like storage, preparation for sale, and attorney fees. Some states require that the creditor provide you with sufficient notice of the redemption. For instance, in Illinois, the creditor must give you at least 21 days to buy back the vehicle after your car was seized.
Some states have consumer protection laws that allow you to “reinstate” your loan. This means you can reclaim your car by paying the amount you are behind on your loan, together with your creditor’s repossession expenses. Of course, if you reclaim your car, your future payments must be made on time, and you must meet the terms of your reinstated contract to avoid another repossession.
Any resale of a repossessed vehicle must be conducted in a “commercially reasonable manner.” Your creditor doesn’t have to get the highest possible price for the vehicle — or even a good price. But a resale price that is below fair market value may indicate that the sale was not commercially reasonable. “Commercially reasonable” may depend on the standard sales practices in your area. A creditor’s failure to resell your car in a commercially reasonable manner may give you a claim against that creditor for damages or act as a defense against a deficiency judgment.
Personal Property in the Repossessed Vehicle
Regardless of the method used to dispose of a repossessed car, a creditor cannot keep or sell any personal property found inside your car. In some states, your creditor must tell you what personal items were found in your car and how you can retrieve them. Your creditor also may be required to use reasonable care to prevent anyone else from taking your property from the car. If your creditor can’t account for articles left in your vehicle, you may want to speak to an attorney about your right to compensation.
Paying the Deficiency
Any difference between what you owe on your contract (plus certain expenses) and what your creditor gets for reselling the vehicle is called a “deficiency.” For example, if you owe $15,000 on the car and your creditor sells it for $10,000, the deficiency is $5,000, plus any other fees you owe under the contract. Those might include fees related to the repossession, early termination of your lease, or early payoff of your financing. In most states, your creditor is allowed to sue you for a deficiency judgment to collect the remaining amount owed as long as it followed the proper procedures for repossession and sale. Similarly, your creditor must pay you if there are surplus funds after the sale proceeds are applied to the outstanding contract obligation and related expenses, but this situation is less common.
You may have a legal defense against a deficiency judgment if, for example, your creditor breached the peace when seizing the vehicle, failed to sell the car in a commercially reasonable manner, or waited too long before suing you.