Even after your car is taken back by the lender, your financial obligations might not end. Vehicle repossession can be a complex process with lingering costs. Here’s a breakdown of what you should know if your car is repossessed.
Understanding Repossession Fees
When your lender repossesses your car, they typically incur costs for the process. These repossession fees are generally passed on to you. These fees cover the expense of picking up and storing the vehicle. However, it’s important to know that these fees must be “reasonable.”
What constitutes “reasonable” is not fixed and can be interpreted by courts. Factors influencing reasonableness include the type of vehicle, the method of repossession (peaceful or otherwise), and the location of repossession. You have the right to request a detailed list of all repossession costs from your lender to ensure transparency and dispute any charges you believe are unreasonable.
Deficiency Balance and Surplus After Vehicle Sale
After repossession, the lender will usually sell your car to recover the outstanding loan amount. This sale can lead to either a deficiency balance or a surplus.
A deficiency balance occurs when the sale price of the repossessed vehicle is less than the remaining loan balance plus repossession expenses. In this situation, you are responsible for paying the difference. For example, if you owe $10,000 on your car loan and it sells for $7,500 after repossession, you would owe a deficiency balance of $2,500, in addition to the repossession fees. Lenders are within their rights to hire debt collectors to pursue this deficiency balance if it remains unpaid.
Conversely, a surplus happens if the car sells for more than what you owe on the loan, including all repossession costs. In this case, you are legally entitled to receive the surplus funds back from the lender. For instance, using the previous example, if the car sold for $12,000, you would be entitled to the $2,000 surplus after covering the $10,000 loan balance.
Commercially Reasonable Sale and Protecting Your Rights
Lenders are legally obligated to sell your repossessed vehicle in a “commercially reasonable manner.” This means the sale process must be fair and designed to achieve the best possible price for the car under prevailing market conditions. Factors like advertising the sale, the condition of the vehicle at the time of sale, and the market in which it is sold are considered when determining commercial reasonableness.
If you believe that the sale price obtained for your repossessed vehicle was unreasonably low, you have options. It is advisable to consult with an attorney to review the details of the sale and understand your rights under your state law. State laws vary and may provide additional protections for consumers in repossession situations. You can seek assistance from your state attorney general or your state consumer protection office. Legal aid services can also provide guidance if you are unable to afford a private attorney.
Understanding your rights and responsibilities during and after a car repossession is crucial. Being informed empowers you to navigate this challenging situation and protect your financial interests.
