Required Notices in Car Repossessions

If your car loan lender repossesses your vehicle, you're probably not entitled to any notice before the repossession. But in most states, the lender must provide you with specific notices after repossessing the car.

Notice Generally Isn't Required Before Repossession

Car loan agreements usually specify that the lender can repossess your car when you're late making payments. Most states don't require car loan lenders to give debtors notice before repossessing vehicles. And courts and law enforcement don't usually monitor the repossession process as it's happening. So, you might not even know when or where the car will be repossessed.

But in at least one situation, you'll get notice ahead of time. In a few others, the lender might be limited in when it can repossess your car.

• The loan agreement. Your loan agreement should spell out what happens if you fall behind on payments and how far behind you have to be before the lender can repossess the car. Many loan agreements let creditors repossess a car if you're just a month late on payments. You might even be one payment away from paying off the loan, but the lender can still repossess if you're late. Other agreements will give you more wiggle room with payments before a bank can declare you in default and repossess the car.
• Your past payment history. If the lender had a pattern of previously accepting late payments from you, then it might have waived its right to repossess if you were late again. You might be unable to stop the bank from repossessing the car immediately. But you can raise the creditor's prior acceptance of late payments as a defense if that creditor sues you for a deficiency balance.
• You're in the military. If you're in the military, the creditor usually must get a court order before it can repossess your car. You should, in most cases, get notice of that legal process. Though, some exceptions exist.

Notwithstanding whether the lender was supposed to give you notice before repossessing the car, it is still required to provide you with specific notices after the repossession.

Notices After Your Car Is Repossessed

In most states, the bank must notify you, in writing, of the following matters within a short time, usually five days after repossessing the car, but before it is sold or auctioned:

Notice of Default and Right of Redemption/Right of Reinstatement

The lender must provide you written notice of your right of redemption and (or) right of reinstatement. It must tell you:

• the amount of the outstanding balance of the loan, including all fees and charges
• the deadline to redeem the loan
• the method by which you can redeem or pay off the loan to get the vehicle back, and
• if your state allows for the right of reinstatement, the amount necessary to bring the loan current, and the steps you need to take to reinstate that loan.

Notice of Sale

If you don't reinstate or redeem the car loan, the lender must also send you written notice if it intends to sell the vehicle. This notice may be combined with the first notice discussed above.

Usually, the notice must contain the following information:

• if the car is being sold at a private sale, the date of the intended sale
• if the lender intends to sell the car at a public auction, it must notify you of the time, date, and location of the auction (which allows you to bid on the property or bring your own bidders)
• an explanation of your liability if you owe a deficiency balance after the sale
• how you can get an explanation of how the proceeds of the sale are applied to your debt obligation
• how you can get an explanation of how the lender calculated your debt obligation, and
• contact information to find out more information about the upcoming sale.

Notices After Your Car Is Sold

If the car is sold, the lender must explain how the sale proceeds were applied against your debt. Most states allow the lender to apply the sale proceeds as follows, in this order:

• reasonable costs and expenses of repossessing, storing, and disposing of the vehicle, along with reasonable attorneys' fees (if the loan agreement allows them), and
• the balance of the loan.

If the sale amount doesn't cover the loan balance and costs. If the sale amount isn't sufficient to cover all of these items, then you owe what's called a "deficiency balance." The creditor must notify you of the amount of that deficiency. Typically, if you don't pay the deficiency, the creditor may take further action, such as suing you for the balance.

If the sale results in a surplus. If the creditor recovers more than you owed, the extra money is called a "surplus balance." The creditor must give you an accounting of the surplus and pay it to you, subject to one exception: If you have a co-signor and the loan agreement gives the co-signor rights to the excess, the creditor must pay the surplus to the co-signor. But surpluses aren't common in car repossession sales because a vehicle is typically worth much less than what's owed on the loan contract.

Getting Information About Repossession Notices in Your State

To find information about repossession laws and notices in your state, you can do some research on your own, contact your state attorney general's office or state consumer protection agency, or consult with a local attorney.