Auto Repossession - Repo Laws, Consumer Rights
Get The Facts Regarding an Automobile Repossession
Last Updated: April 28, 2016
Buying a car is the second biggest purchase we make behind buying a house. But, if you are late with your car payments, your vehicle could be repossessed by your lender. Going through an auto repossession is not a fun experience and one that should not be taken lightly as it will cause major damage to your credit score.
When you finance or lease a car, truck, or some other type of vehicle, the loan is normally secured against the vehicle itself. This means that your creditor or lessor holds specific rights to your vehicle until you've completed all loan payments or fulfilled your leasing obligation; and, should you default on the loan, the lender has the right to repossess the vehicle. In fact, even one late payment may provide creditors the opportunity to legally repossess your car, so it is important to be aware of contents of your specific contract and state law governing repossession.
Can Your Car Be Repossessed by the Lender?
If you have defaulted on your contract in any way, your creditor or lessor may have the right to repossess your vehicle. In many states, they can do this legally with no advance warning, and no court action. They must, however, do this without "breaching the peace." It is worth emphasizing again the importance of reading your contract and understanding what constitutes default in your individual situation. The loan contract must disclose the lender's repossession policy and what your rights are if repossession occurs. If your state has specific laws for auto repossessions, they usually will be referenced in the contract as well.
What if You Can No Longer Pay on the Car?
Many of us are faced with temporary challenges such as medical bills or unemployment, and need to find an interim solution. Obviously, it is smarter to try to prevent a vehicle repossession than to dispute it afterward. Contact the creditor and attempt to negotiate a grace period or revised payment schedule; if successful, be sure to obtain any agreements in writing.
If the creditor or lessor refuses to allow any leniency and repossession is eminent, you may decide that voluntary repossession is an option for your situation. Giving the vehicle back voluntarily may reduce your creditors expenses for repossession fees; however, you will still be responsible for paying any deficiency on your credit or lease contract, and there is no guarantee that the late payments and/or repossession will not end up on your credit report.
The Repossession Process
A typical vehicle repossession might progress through the following steps:
- You are notified in writing by your creditor or lessor that your payment is late (not necessarily required, however; contingent on your specific contract).
- You may receive a second notice/warning and/or a telephone call warning of your overdue payment.
- A grace period may pass (length as stated in your contract).
- A second warning may be provided either by phone or mail.
- Your car is repossessed in one of several methods.
- You receive notice of repossession and some explanation of your rights and the process for exercising them.
- You decide whether to pay the exorbitant fees or allow the creditor to sell it at auction for perhaps a fraction of it's worth; possibly leaving you with a balance still due, or deficiency judgment.
What Happens After Repossession?
If you default on your loan, the law in most states allows the creditor or lessor to repossess your car; however, some state laws place specific limitations on the ways a creditor or lessor can repossess and/or sell your vehicle to pay off your debt. Research your specific state laws; if any rules are violated, you may be entitled to damages from the creditor or lessor! For instance, some states require creditors or lessors to inform you in advance if they plan to enter your property to seize your car. If a breach of peace occurs (a public scene, harm to person or property, perhaps even removing your vehicle from an enclosed garage), you may be entitled to compensation.
Once your car has been repossessed, it will most likely be sold in a public or private auction to cover the debt partially or in full. State laws typically provide some requirement that the sale of the repossessed vehicle be conducted in a commercially reasonable manner. Generally, the expectation is that the sale price obtained is fair for the established market for the vehicle (but the expectation is on the low end), and the method of selling the car was conducted in a commercially reasonable manner according to standard custom for the appropriate market. Thus, contingent on your individual state law, failure to sell your vehicle in a commercially reasonable manner and get a fair and honest market price, may provide means for a claim or dispute against your creditor for damages.
Some state laws require that the creditor or lessor must inform you what will happen to your car; if it is to be sold at public or private auction for instance, inform you of the date of sale and allow you the right to participate and/or buy back the vehicle (inclusive of additional fees you may owe due to the repossession process). If the creditor or lessor does not inform you of this information, and your state law dictates this, you may be able to recover damages as well.
Personal property left in your vehicle is typically not considered the property of the creditor or lessor post-repossession; and in fact, they are typically required to ensure that others cannot damage or remove items left behind. Depending on your state laws, you may have a right to compensation for any missing articles of personal property resulting from the repo process. Personal property constitutes freestanding items that are left in the car which are not improvements or physical attachments to the car (like a built-in GPS or DVD player).
Can You Dispute a Deficiency?
It's not over yet. Your car was repossessed while you were enjoying your popcorn with that cool guy or gal you just met, sold for pennies on the dollar and now you are in front of a judge being sued for the outstanding balance. How did this happen? Sometimes when your car is repossessed the original creditor sells the car for less than the amount remaining on your loan. When this happens they can come after you for the balance, called the deficiency. This Sample Letter is for the purpose of disputing collection activities on a deficiency from a motor vehicle repossession. It may be used AFTER 2 years from the date of the repo sale, providing there has been no filed claim for a judgment. It should not be used if you have been sued, or if the repossession is less than 2 years ago.
Depending on your individual state's law, in the event of a suit for a deficiency judgment, you should be notified of the date of the court hearing. It is during this process that you would provide and utilize any grounds for disputing the judgment; such as any failure to follow the protocols we have discussed earlier (again, each state is different so you will need to do your homework).