Car repossession is a serious issue that many car owners might face if they fall behind on their auto loan payments. Losing your vehicle can be stressful, and understanding the repossession process is crucial. This guide will explain how cars get repoed and what happens after your car is taken.
What Leads to Repossession?
Car repossession typically occurs when a borrower fails to uphold the terms of their auto loan agreement. The most common reason is missing payments. Most loan agreements consider you in default after just one missed payment, though lenders usually start the repossession process after multiple missed payments, often around 2-3 months of delinquency. Besides payment defaults, other breaches of contract, such as failing to maintain insurance on the vehicle, can also lead to repossession.
The Repossession Process
The exact steps for car repossession can vary by state, but generally follow this process:
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Default Notice: While not always legally required, lenders often send a notice of default after you miss payments. This notice informs you that you are behind on your loan and risk repossession if you don’t catch up.
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Repossession: If you don’t bring your loan current, the lender can legally repossess the vehicle. In most states, lenders can repossess your car without going to court first, as long as they don’t breach the peace. “Breaching the peace” generally means physically harming you or damaging your property to take the car. They can’t, for example, break into a locked garage to seize the vehicle. However, they can take it from your driveway or a public street.
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Post-Repossession Notice: After repossession, the lender is legally required to notify you. This notice will detail that your car has been repossessed and explain your rights and options, such as how to redeem the vehicle (pay the full loan amount plus repossession costs) or reinstate the loan (catch up on missed payments plus fees), if applicable in your state and loan agreement. The notice will also explain how the car will be sold, usually through a public auction or private sale.
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Vehicle Sale: The lender will sell the repossessed vehicle to recoup the money you owe. They are legally obligated to sell the car in a “commercially reasonable manner”. This means the sale process must be fair and designed to get a reasonable market value for the car.
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Deficiency Balance or Surplus: After the car is sold, the sale price is applied to your outstanding loan balance, including repossession costs.
- Deficiency Balance: If the sale price doesn’t cover the full amount you owe (loan balance + repossession fees), you are responsible for paying the remaining “deficiency balance.” For example, if you owed $10,000 and the car sold for $7,500, you would owe $2,500 plus repossession fees. Lenders can pursue debt collection for this balance.
- Surplus: If the car sells for more than what you owe, including fees, you are entitled to the “surplus” funds.
Financial Responsibilities After Repossession
Even after your car is repossessed, you may still have financial obligations. You are generally responsible for repossession fees, which the lender will charge for picking up your vehicle. These fees must be “reasonable,” and what is considered reasonable can be determined by a court, considering factors like the vehicle type and repossession method. You have the right to request a list of these repossession costs from your lender.
Furthermore, as mentioned, you might owe a deficiency balance if the sale of your car doesn’t cover your loan. It’s crucial to understand how the car was sold because you have the right to a commercially reasonable sale. If you believe the sale price was unreasonably low, you should consult with an attorney to explore your options.
Alternatively, if the sale of your vehicle results in a surplus after covering your loan and fees, you are legally entitled to receive that surplus.
Know Your Rights and Seek Help
Car repossession can have significant financial consequences. It’s important to be aware of your rights throughout the process. State laws vary regarding repossession, so it’s beneficial to understand the specific regulations in your state. You can find more information through your state attorney general and state consumer protection office. If you are facing car repossession or have questions about your rights after repossession, consider consulting with a private attorney or your local legal services office for guidance. They can help you understand your legal options and ensure your lender is acting lawfully.
