When you finance the purchase of a vehicle by obtaining a loan, you are legally obligated to make the monthly loan payments on time. Failure to make the scheduled monthly payments will result in the loan being placed in default status. Once a loan is in default, the lender may repossess the vehicle and sell it at auction. If the proceeds from the sale fail to satisfy the balance owed on the loan, the lender may file a lawsuit for the deficiency and obtain a judgment against you. Many factors will affect how long after repossession a judgment is entered; however, on average it will take 60 to 120 days.
Default
Each lender has its own procedures and time frames for declaring a loan in default. In most cases, a vehicle loan has a grace period within which the borrower must make the payment. Grace periods are typically between five and 30 days. Although most lenders will work with borrowers facing temporary financial problems, a lender can legally declare the loan to be in default when a single payment is considered late. The terms of the contract you signed, as well as the laws of the state where the contract was entered into, will also dictate when the loan may be declared in default.
Repossession
Once the loan is in default, the vehicle may legally be repossessed. Again, state laws will dictate how, when and where a vehicle may be repossessed; however, in most cases, a lender may repossess a vehicle at any time and any place. A lender may also enter onto your property to repossess the vehicle as long as they do not commit a "breach of the peace" when doing so. You do have a right to have personal property located inside the vehicle returned to you; however, the towing company may charge you a fee for storage of the items.
Redemption and Auction
Once the vehicle has been repossessed, most states allow the borrower to redeem the vehicle or even reinstate the loan. Redeeming the vehicle requires repayment of the loan in full plus expenses. If you cannot redeem or reinstate, then the lender will sell the vehicle at a public auction. The lender is usually required to publish notice of the sale, which means the sale may not take place for 30 to 60 days after repossession. The lender does not have to seek the highest price for the vehicle or sell for its actual worth. As a result, there may still be a balance due on the loan after the vehicle is sold.
Judgment
If the vehicle was sold at auction but the sale did not net enough money to pay off the balance due on the loan, then you will have a deficiency balance due. If, for example, the balance due on the loan was $10,000 and the vehicle was sold at auction for $7.000, you still owe $3,000 plus any expenses the lender incurred in the repossession. The lender then has the option to file a lawsuit against you for the deficiency balance. The length of time it takes to complete the lawsuit will depend on the court where it is filed and whether or not you choose to defend the lawsuit. If you do not defend the complaint, a deficiency judgment could be entered against you within 30 to 60 days on average.
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