Car Repossession: Notices the Lender Must Provide
Learn what notices your auto loan lender must provide during the car repossession process.
If you are behind on your car payments, your car loan lender may repossess your car. While in many states (but not all) the lender doesn't have to notify you before repossessing your vehicle, there are some notices that your lender must provide as the process moves along. For example, in all states the lender must provide notice before selling your repossessed motor vehicle.
It's important to understand the notices the lender must provide, because they often mark time periods in which you can take action or negotiate with the lender to avoid the repossession or minimize your damages afterwards.
Reasons for Repossession
Your car may be at risk for repossession because you’ve fallen behind on your payments, failed to keep it insured, or otherwise breached your loan agreement. For a more detailed explanation of repossession, see Car Repossession and Auto Loan Charge-Offs.
Types of Notices
State laws vary greatly, but, in general, there are three types of notices you may receive when your auto loan is in default.
- An Acceleration Notice, informing you that as a result of the default, the full amount of your loan is due.
- A Notice and Opportunity to Cure, giving you notice of the default and a time within which you must pay all past due amounts to avoid repossession.
- A Post-Repossession Notice, setting forth the date and time of the sale
Your car loan or lease agreement may contain a provision called an “Acceleration Clause.” This clause allows the lender to demand the full amount of the outstanding loan if you miss a payment.
For example, if your loan balance is $10,000, and you have missed a monthly payment of $500, your lender can demand that you pay the $10,000 all at once. If you do not, it can repossess the car.
Some states prohibit a lender from accelerating a loan without notice. As a practical matter, most lenders will voluntarily send you a notice of their intent to accelerate the loan to get you to pay the past due balance.
If you receive an acceleration notice, begin negotiating with your lender to avoid repossession. This letter is often the lender’s last-ditch attempt to get you to pay something toward your loan.
In some states, the creditor must provide you with what is often called an “Opportunity To Cure” notice before it repossesses your car. This notice must inform you of:
- the amount that is due, and
- the date by which you must pay the amount due
The lender may combine this notice with an acceleration notice. If the lender has accelerated your loan, the amount due shown on the notice will be the total outstanding loan balance. Otherwise, the amount due will be the total of your past due payments.
States that require an Opportunity to Cure often have statutes that specify:
- how late your payment must be before the loan can be considered to be in default
- the amount of time you have to cure the default
- the lender's duty to state its intention to repossess the vehicle if you do not make the payment demanded in the notice, and
- whether certain lenders, such as federal credit unions, are exempt from the notice requirements.
As with the Acceleration Notice, if you receive a notice from your creditor demanding payment within a specified time, contact the creditor immediately to discuss payment options. Keep in mind that the lender likely does not want to repossess your car if you can agree on reasonable repayment terms.
You should also be aware some states only require the lender to send this notice once. If you have previously defaulted on the loan, rehabilitated it, then default again, the lender does not have to give you an opportunity to cure the second default.
State laws vary, so check your state’s statutes to find out what the lender is required to do in your particular situation.
You may also be entitled to certain types of notices after your lender repossesses your car.
Opportunity to Cure
Most states require the lender to give you an opportunity to avoid the sale of the car by “redeeming” the loan. The lender is required to send you a notice outlining what you must do to redeem your loan, including the amount you will be required to pay to get the vehicle back.
In most states, the amount to redeem is the full amount of the loan. As a practical matter, these provisions are usually of no help -- most cars are repossessed because the owner doesn't have the money for monthly payments, let alone the full amount of the loan.
However, some states, such as Ohio, require a lender to accept only the amount of past due installments to redeem the loan. Check the laws in your state, and verify that your lender is complying with them. For more information, see Car Repossession: What Is the Difference Between Reinstatement and Redemption?
Notice of Disposition or Notice of Sale
You are liable for the difference between what your vehicle sells for and the amount you owe, including any expenses of the lender in connection with the sale. If you are unable to redeem your loan, your goal should be to make sure the lender sells the car in a manner consistent with the law so that you can minimize your liability for a deficiency judgment. For more information, see Deficiency Balances After Repossession.
Every state has laws that require the lender to give you notice of the sale. That notice must contain:
- a description of the vehicle being sold
- the date of the intended sale, if the car is being sold at a private sale
- the time, date, and location of the auction if the lender intends to sell the car at a public auction
- a statement that you may obtain an accounting of any amount owing on the vehicle,
- contact information so that you can find out more information about the upcoming sale.
Your lender must send this notice at least ten days prior to the date of the sale.
Post Sale Notices
After selling the vehicle, the lender must send you a notice that states:
- the amount it received from the sale
- its expenses in connection with the repossession, and
- the amount of any deficiency you are liable for or the amount of surplus the lender owes you.
The lender cannot attempt to collect the deficiency until it sends you this notice. For more information on deficiency judgments, see Defenses to Deficiency After Car Repossession.
If the Lender Fails to Comply
If your lender fails to send a required notice, you may not be liable for any deficiency, and may be able to obtain compensation for damages. You should consult with an attorney if you believe your lender did not comply with the law.