Having your vehicle repossessed is a scary thought for anyone. Most Americans need their cars to get to work, school, and everywhere in between. If you’re late on your payments, you could risk getting your car repossessed. This is true whether you are late on your car loan payments, your lease payments, or if you have taken out a loan based on the value of your vehicle, such as a car title loan.
Essentially, when you finance or lease a vehicle, your creditor or leaser have ownership[ rights that end once you’ve paid off your loan or lease. These rights are established by the contract you sign and are upheld by the state in which you sign it.
Similarly, when you take out a car title loan, you are allowing a lending company to place a lien on the car’s title. That makes them a legal owner until you pay off your loan and they remove the lien on your vehicle.
The most important things to remember is that if you don’t make timely payments on your vehicle or a loan attached to your vehicle, your creditor or lender may have the right to repossess your car without warning and without going to court.
So, what are the laws that you should know when it comes to vehicle repo? Continue reading to find out.
When You’re in Default
Once you are in default with a lease or loan, most state laws allow the creditor to reclaim your car at any time without notice. They are also allowed to come onto your private property to do so. It is important to remember, however, that in most states, creditors cannot employ a “breach of peace” to repossess the vehicle. That means using physical force, threatening force, or, in some states, even taking the car from a gate or closed garage without your permission.
In the event that there is a breach of peace, it is crucial to know your rights within the state that you live. Your creditor may be required by law to pay a penalty or compensate you if any harm is done to your or your private property. A breach of peace may also give you a legal defense against your creditor if they sue you to collect any difference between what you owe and what the creditor gets in a resale of the vehicle.
Private Property Within Your Car
It is important to remember that even if your car is repossessed, any and all private property that is within your car at the time of repossession will remain your property.
Your creditor or lender is not allowed to keep or sell any private property that they may find in your car at the time of repossession. Your creditor is also required to use reasonable care to prevent anyone else from removing the private property in your car while it is being stored. If your creditor is unable to account for the private property that was in your car, you should speak to an attorney about your right to compensation for that property.
What Happens When Your Vehicle Gets Seized?
In many states in the U.S., your creditor or lender is legally allowed to seize your car as soon as you default on your loan or lease. Your contract will dictate what technically constitutes a default, but it is safe to assume that a failure to make an on-time payment will get you in trouble.
When it comes to title loans specifically, it is important to know the laws related to title loans in your state specifically. They can vary fairly dramatically.
When Your Vehicle Gets Sold
In the unfortunate even that your vehicle actually is repossessed by the lender or creditor, they can then decide to either keep the vehicle as compensation for your debt or sell it in a public or private sale to make up the money back that they lost.
In some states, your creditor or lender is required to let you know what will happen to your car. If the car is being sold in a public option, your creditor may have to tell you where and when that auction is taking place so that you can participate in the bidding. You can also find out the date and time of the sale if it is a private one. This information gives you the ability to buy back your car.
Once your car goes on sale, you will have the opportunity to redeem, or buy back, your car. You can do this by paying the full amount you owe. A word of warning, this likely includes any fees from past-due payments as well as any of your remaining debt. You will also have to pay any existing expenses related to the repossessing of your vehicle including storage, legal fees, preparation for sale, and more.
In some states, you will be protected by consumer protection laws that will allow you to “reinstate” your loan. That means that you can get your car back if you are able to pay the money you owe and pay for any of the expenses that your creditor incurred while repossessing your car. Once you get your car back, you have to be sure that you are able to complete your payments on time. Otherwise, you will likely face yet another repossession.
Paying Deficiency Fees
While any resale of your care must be carried out in a commercially reasonable manner, there may still very likely be a deficiency between what the car was resold for and what you owed. In that event, you will still have to pay your creditor a loaner the deficiency.
For example, if you owed $15,000 and your creditor was only able to resell the car for $10,000, you would be responsible for paying back the remaining $5,000 plus any other fees you owe under the previous contract.
Adversely, your creditor must pay you if there are any surplus funds from the sale, though that is far less common.
It is important to keep in mind that you may have a legal defense in a deficiency judgment if your creditor breach the peace while seizing the vehicle, failed to sell the car in a commercially reasonable manner, or waited too long before suing you. It is always wise to weigh your legal options before paying any deficiency fees.
Remember to Talk to Your Creditor Before Any Potential Repossession
As a rule, it is always easier to try and prevent a potential repossession than argue your vehicle repossession after the fact. Get in touch with your creditor once you realize you will be late with a payment. If they believe that you will be able to pay soon, they will likely give you some leeway.
Your creditor still has the right to refuse late payments, and they may demand that you return the car in place of a late payment.