Losing your car to repossession can be a stressful and confusing experience. Many car owners are unaware of what exactly happens after their vehicle is repossessed and what financial obligations they might still face. Even after the car is taken away, your financial responsibility related to the auto loan may not be over. It’s crucial to understand the process of car repossession, your rights, and what costs you might still be liable for.
Understanding Repossession Fees
When your lender repossesses your vehicle due to missed loan payments, they will typically charge fees to cover the cost of the repossession process itself. These repossession fees are in addition to the outstanding loan balance you already owe. It’s important to know that while lenders can charge these fees, they must be reasonable.
What constitutes a “reasonable” repossession fee isn’t strictly defined by a fixed number, but rather is often evaluated by courts if disputes arise. Factors that can influence what’s considered reasonable include the type of vehicle being repossessed (a motorcycle versus a large truck, for example), the method used for repossession (towing, flatbed, etc.), and the location where the vehicle was recovered. As a borrower, you have the right to request a detailed breakdown of all repossession costs from your lender. Reviewing this list is a crucial step in understanding the total financial impact of the repossession.
Deficiency Balance and Surplus After Vehicle Sale
After your car is repossessed, the lender will usually sell it to recoup some of the money you still owe on the loan. This sale can lead to two possible financial outcomes for you: a deficiency balance or a surplus.
Deficiency Balance: If the sale price of your repossessed vehicle is less than the remaining balance on your loan (including repossession fees), you will likely be responsible for paying the “deficiency balance.” This is the difference between what you owed and what the car sold for. For instance, imagine you still owe $10,000 on your car loan, and after repossession and sale, the car is sold for $7,500. In this scenario, you would owe a deficiency balance of $2,500, plus any applicable repossession fees. If you fail to pay this deficiency balance, the lender has the right to pursue debt collection, potentially hiring a debt collector to recover the funds.
Surplus: Conversely, if your vehicle is sold for more than the outstanding loan balance and repossession costs, you are legally entitled to the surplus funds. Using the previous example, if the car sold for $12,000 instead of $7,500, you would be entitled to receive the $2,000 surplus (after the $10,000 loan balance is covered). It is important to actively inquire with your lender about the sale price of your vehicle to determine if you are owed a surplus.
“Commercially Reasonable” Sale: What Does It Mean?
Lenders are legally obligated to sell your repossessed vehicle in a “commercially reasonable manner.” This is a critical protection for borrowers. A commercially reasonable sale means the lender must take appropriate steps to ensure the car is sold at a fair price. While it doesn’t guarantee the highest possible price, it does mean the sale process should be conducted in a way that is typical and fair for the market.
Factors that contribute to a commercially reasonable sale can include:
- Proper Notification: Lenders are generally required to notify you about the sale, giving you a chance to potentially bid on the vehicle yourself or find buyers.
- Reasonable Advertising: The lender should advertise the sale to attract potential buyers.
- Typical Sale Methods: Using common sale methods for repossessed vehicles, such as auctions or established used car channels.
If you believe that your lender did not sell your vehicle in a commercially reasonable manner and that the sale price was unfairly low, it is advisable to consult with an attorney to understand your options and potential legal recourse.
Know Your State Rights and Seek Advice
Car repossession laws and your rights as a borrower can vary depending on your state. Many states have specific regulations regarding repossession procedures, sale requirements, and deficiency balances. It’s essential to be aware of the consumer protection laws in your specific state.
To find more information about your rights, you can reach out to your state attorney general’s office or your state’s consumer protection agency. These resources can provide valuable guidance and information specific to your location. Additionally, consulting with a private attorney or your local legal aid services office can offer personalized legal advice and help you navigate the complexities of car repossession and your financial obligations.
Understanding what happens when your car is repossessed is empowering. By knowing your rights and responsibilities regarding repossession fees, deficiency balances, and the sale process, you can better protect your financial interests during this challenging situation.
