When you buy a car or other vehicle on credit, know that until you have made the last payment to your creditor the lender retains secured rights in the vehicle. These rights are created by the contract you signed and by the law of your state.
Secured Creditors Right To Repossess And Resell Vehicle
Your creditor has legal authority to seize your vehicle as soon as you “default” on your loan. What constitutes default is actually stated in detail in your installment contract. The creditor will have the right to repossess your car and sell it on the open market. However, state and federal consumer law imposes limits on how your creditor may repossess and resell your vehicle.
Consumer Law Protections
If any material consumer law is violated, your creditor may lose their article nine secured interest rights against you, or may even be required to pay you damages.
In most states if your creditor has agreed to accept your late payments or to change your payment date, the terms of your original contract may no longer apply. Such a change in your credit contract may be made orally, in writing, or, sometimes, simply by your creditor’s repeated acceptance of late payments without complaint.
Repossession At Any Time – But No Breach Of The Peace
Once you are in default, the laws of most states permit the creditor to repossess your car at any hour of the day or night, without prior notice, and to come onto your property to do so. These repossession right of the creditor is not absolute by any means.
When seizing the vehicle, your creditor may not commit a “breach of the peace” by using physical force or threats of violence or removing it from a closed garage without your permission may also constitute a breach of the peace, depending on the law in your state.
Should there be a breach of the peace in seizing your car, your creditor may be required to pay a penalty or, if any harm is done to you or your property, to compensate you. Also, because of a breach of peace, your creditor may lose the right to collect a “deficiency judgment.”
A deficiency judgment is the difference between what you owe on your loan and what your creditor receives when reselling your vehicle. Once your car has been repossessed, your creditor may decide to keep the car as compensation for your debt or resell it in either a public or private sale. In any case, in most states your creditor must notify you of the details.
Right To Demand Car Be Sold At Auction
Under most state laws, your creditor must tell you if it wants to keep the car because you have the right to demand that the car be sold instead. You may want to exercise this right if the car is worth more than what you owe on it.
Most creditors prefer to sell the car however, rather than keep it. If your creditor chooses to resell the car at public auction, state laws usually requires you to be notified of the date so that if you wish, you can attend and participate in the bidding.
Resell Must Be Made In Commercially Reasonable Manner
Any resale of a repossessed car by the creditor plaintiff must be conducted in a commercially reasonable manner. This does not mean that your creditor must get the highest possible price for the vehicle. Notwithstanding, a resale price that is below fair market value, however, may indicate that the sale was not commercially reasonable.
A sale made according to standard custom in a particular business or in an established market will be considered commercially reasonable in almost all cases.
Failure to resell your car in a commercially reasonable manner may give you either a claim against your creditor for damages or a defense against a deficiency judgment.
Valuables Left In Car When Repossessed
In most states, the creditor is required to use reasonable care to prevent others from removing your personal property from the repossessed car.
If you find that your creditor cannot account for valuable articles left in your car, you may wish to speak with a consumer attorney about your right to compensation.
Paying The Deficiency After Sale
Many states offer the creditor the right to a deficiency judgment, which is the difference between what you owe on your loan and what your creditor gets for reselling the vehicle is a “deficiency.”
Several states however, have consumer protection laws that restrict creditors from suing for a deficiency when vehicles or other similar consumer goods are involved. If you are sued for a deficiency judgment, you will be notified about the date of the court hearing. It may be important for you to appear at this hearing, because it may be your only opportunity to use any legal defenses you may have. If your creditor breached the peace when seizing the vehicle or failed to resell the car in a commercially reasonable manner, these may be defenses against a deficiency judgment.