Defenses to Deficiency After Car Repossession

If your car is repossessed, you may have defenses to the lender's deficiency lawsuit against you.

If you fail to make car, van, truck, motorcycle, or other auto payments, your car loan lender will likely repossess your motor vehicle. If that happens, your lender can sell your car and use the proceeds of the sale to recover what you still owe to them. If the sale proceeds don’t cover the entire amount you owe, the car lender may be able to go after you for the remaining amount, called the deficiency.

In most states, your lender must file an action in court to determine the exact amount of the deficiency, and to have the deficiency become a judgment against you. When that happens, the deficiency becomes a money judgment, much like a judgment entered against you for a credit card or another consumer debt. (To learn more about how deficiencies work, see  Deficiency After Car Repossession: Will I Still Owe Money?)

However, there are things you can do to either avoid a deficiency lawsuit altogether, or defend against a deficiency lawsuit.

Avoiding Deficiency by Avoiding Car Repossession

The best way to fight a deficiency judgment is to try to avoid it completely. You should call your lender if you feel repossession is imminent. Sometimes your lender will accept a lump sum that is less than what you currently owe or agree to a payment plan, to avoid repossession.

If you cannot avoid the repossession and the car is sold at auction, you have a number of defenses to the entry of the deficiency judgment.

Challenging a Deficiency

In a deficiency action, your lender will have to demonstrate what you owe to them, and how much your vehicle sold for, to prove that you still owe them a balance. You have the right to assert defenses to the deficiency once an action is filed in court. The defenses available to you will vary by state, but may include the following:

Improper Calculation of Payments.  If the loan balance is incorrect, this may be a defense to a deficiency. You may have made payments which were never credited to you, especially payments after default or repossession. Or, the lender may not have a complete loan history to demonstrate what they are owed.

You always have the right to request a loan history from your lender, and you should do so immediately when you are informed that your vehicle will be sold at auction.

Standing.  If your loan has been assigned or transferred, you may have a right to challenge the collector’s ownership of the debt or the loan (this is called standing).

Lack of Notice.  Many state laws require the lender notify you of the time, date, and manner of the sale of your vehicle. The notice laws can be very strict, and the lender may lose its right to get the deficiency unless it strictly follows the law.

Improper Auction Procedures.  In most states, the lender must sell your vehicle in a commercially reasonable manner. There is no hard and fast definition for this term, but generally this means the lender must have properly publicized the sale and the sale had to have taken place with open-bidding and at a fair auction.

Although the auction sale price of your vehicle alone will not determine whether the sale was fair or not, it can be a factor that a court considers. For example, if your 2012 Mercedes in perfect condition sold for only $5,000, you may have grounds to argue that the auction was not conducted properly as the market value of such a car is far above the sale price. In some instances you may need to obtain an expert to testify about the fair auction purchase price.

Breach of the Peace.  Many states have laws that prohibit lenders from breaching the peace while repossessing vehicles. Lenders cannot break and enter, or use force or violence in repossessing a vehicle. If they do, many state laws prevent a lender from getting a deficiency.

Loss of Personal Property.  Most states have laws that require the lender to return to you any personal property in the vehicle when it was repossessed. This does not include items affixed to the car, such as a stereo. But for other items, you may be able to use the value of the unreturned personal property to lower the amount of any deficiency entered against you.

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