When you fail to make payments on a car loan, the defaulted loan will negatively impact your credit score, and your vehicle may be repossessed as well. After a car has been repossessed by creditors, they have the option of selling the car. In most states, there are strict regulations governing how a repossessed car is sold and how money from the sale affects the amount still owed by the indebted owner.
State Laws
The most important thing to know about selling a repossessed car is that specific regulations can vary from state to state. The purpose of the regulations is to ensure the fair treatment of the lender, borrower, and whomever inevitably purchases the repossessed car. Whether you are buying a repossessed car, selling one, or having your car repossessed for sale, you should be aware of the specific laws regarding the matter in your state.
Stopping the Sale
Some states have laws that allow the owner of a repossessed car to stop the sale by meeting one of two criteria. You may have the right to pay off the entire loan that is still outstanding or to pay back just what is owed in late payments, plus fees and interest in most cases. Not every state offers these options to those going through a repossession, but if you have a chance to stop the sale of your car before it is too late, you should know.
Deficiency vs. Surplus
There are three potential outcomes to the sale of a repossessed car. The sale could pay off the exact amount of the outstanding debt, less than the debt, or more.
A deficiency, as it relates to car repossession, is the amount of money still owed toward a loan after the sale of the car is subtracted from the debt. Several states allow creditors to require the debtor to pay the deficiency amount as long as the car was sold using solid commercial methods. In other words, unless the creditor allowed the car to be sold for less than was reasonable, you may still owe money after the sale.
A sale surplus is any amount of money a creditor received from a buyer that exceeds the defaulted debt. Some states require creditors to refund this money to the debtor, while others allow that surplus to be kept.
The sale of a repossessed car is an option that creditors can pursue after a loan defaults. Understanding the right of both the borrower and the lender during a repossession sale can help you retain all of your legal rights.
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