When a consumer falls behind in their car payments – for whatever reason – the immediate concern is whether the lender will repossess the vehicle. Virginia law requires a finance company that wants to seize a vehicle for loan nonpayment to follow certain procedures. If the bank or its agent neglects to comply with the law during the repossession process, the debtor gets certain legal rights.
The debt, the lien, the auction and the deficiency
When a consumer purchases (or leases) a vehicle, they often finance part or all of it with a loan. The lender in turn receives a lien or security interest on the title of the car or truck, which means that the vehicle becomes collateral for the loan. As a result, if the borrower misses payments, the bank normally may physically repossess (take back) the car so as not to suffer a financial loss.
Normally lenders sell repossessed vehicles at auction and apply the sales proceeds to pay down the loan. If the sale brings in a higher amount than what is due, the bank must return the overage to the borrower. If the auction sales price is not enough to cover the balance due on the auto loan (plus potentially its repossession expenses), the financing company can sue the consumer for the difference – called a deficiency.
Lender’s legal obligations
The procedural requirements for a financing company or their agent undertaking Virginia vehicle repossession include:
- The lender may not remove a vehicle from a locked garage.
- After the repossession, at least 10 days before the intended sale date, they must give specific written notice that the loan is in default and of the right to cure, meaning that the consumer has a specific amount of time to pay off the loan (or, at the lender’s option, to bring the loan current). get the car back. This notice must also include the total amount due on the loan, including interest and reasonable costs of repossession and sale, and the date and location that the auction will occur, or if it is to be sold at a private sale (i.e., on a dealer’s lot), it must advise the date after which the sale will occur. Again, the consumer has the chance to redeem the car (buy it) by paying the total amount due up to the time of sale.
- The lender may not sell the vehicle before the sale date in the notice.
- The bank must sell the vehicle in a “commercially reasonable manner.”
Consumer remedies after repossession
Just because the bank seized the vehicle for nonpayment does not mean that the matter is closed. There may still be an outstanding loan balance. If the bank did not comply with its responsibilities under the law in the repossession, it may have extinguished its right to any deficiency, depending on the situation. The consumer may have the right not only to challenge any deficiency, but also to sue the lender for damages equal to 10% of the amount financed plus finance charges, as well as any actual damages incurred.
Key takeaway: Seek legal advice as early as possible
When facing car loan delinquency and possible repossession, Virginians should seek legal counsel to understand their options – but even if repossession has passed, the borrower may still face a deficiency claim or may have claims against the lender, so attorney guidance is still wise. If the repossession has not occurred, a lawyer may be able to help negotiate a settlement or alternate arrangement with the lender that would allow the borrower to keep the car, or refinance might be another option. If the refinance has already occurred, a lawyer can evaluate whether the lender violated any laws in the repossession and sale process, and whether the consumer has claims against the lender for those violations.
A Virginia consumer law attorney can also assess whether there are deficiency defenses and other issues with the repossession. For example, did the finance company violate a state or federal banking or consumer protection law? Did the bank violate any terms of the loan agreement? Did it provide an improper notice of the post repossession rights, or otherwise conduct the sale in a commercially unreasonable manner? Did they have the right to repossess the vehicle to begin with?
An experienced consumer vehicle rights attorney can help answer these questions.