I bought a car in Maryland several years ago. I recently suffered from some serious health problems and have been unable to work. I couldn’t make my car payments and didn’t need my car anyway. So I let the lender repossess it. I received a bunch of notices along the way, and the most recent one says I owe $8,000 (the car was sold at public auction). What is this bill for?
In Maryland, if the lender complies with certain required notices before and after repossessing your car, it can come after you for a “deficiency.” A deficiency results if the lender sells the car and the sale proceeds do not cover your unpaid loan balance plus the lender’s costs of sale and repossession.
There is one, somewhat obscure, limit to a lender’s right to collect a deficiency after repossession (discussed below). But it rarely applies in car repossession cases.
What Is a Deficiency After Car Repossession?
If you fall behind in your car loan payments in Maryland, your car lender can repossess your car without getting your permission or going to court. The lender might send you a notice that it intends to do this, but it doesn’t have to (if it doesn’t send the notice, however, it can’t later recover its repo costs from you).
After repossessing the car, the lender then must send you a notice that you can get the car back within 15 days if you bring the loan current and cover the repo costs. If you don’t act within that time period, the lender can sell the car at public auction or private sale, after giving you 10 days’ notice of the sale date and time.
If the sale proceeds are less than your unpaid loan balance plus the costs of repossession and sale, you’ll owe a deficiency. (Md. Gen. Laws §§ 12-115, 12-626.) (Learn more about deficiency balances after car repossession.)
What if the sale proceeds are more than the loan balance? If, on the other hand, the sale proceeds covered both the unpaid loan balance and the lender’s costs, you wouldn’t owe a deficiency. In fact, the lender would have to return any surplus money to you. Unfortunately, this rarely happens in car repossession cases.
Maryland’s Anti-Deficiency Law
In Maryland, the lender cannot collect a deficiency after repossessing and selling goods if:
- the contract (in this case, the car loan) does not state that the lender can collect a deficiency, or
- the original cash price of the car was $2,000 or less. 63 Md. Op. Atty. Gen. 92.
You can check your car loan to see if it allows the lender to pursue you for a deficiency – but unless the lender really goofed, the contract will have such a provision. And, as you can imagine, rarely do Maryland consumers buy cars for $2,000 or less. In all practicality, this part of Maryland’s anti-deficiency law is of no use in car repossession cases.
When the Car Lender Violates the Law
However, a Maryland lender is also barred from collecting a deficiency if it fails to provide the required notices during the process. It sounds like you got quite a few notices in your case, but you could ask a local attorney to review each notice to make sure the lender complied with the law (Learn more in Can a Car Lender Collect a Deficiency After Repo?)