Often, consumers purchasing a new or used car do not pay the entire amount of sale upfront. Instead, they make a contractual agreement with the car dealer to make monthly payments with or without interest until the amount of sale is paid off entirely. Until the consumer pays the debt off, the car dealer or lien holder legally owns the vehicle. If the consumer is not able to make payments on time, the lien holder may repossess the vehicle.
Reasons for Repossession
Failure to pay a loan payment on time is known as "defaulting." Defaulting on a loan may result in the repossession of a vehicle. Specific details regarding what constitutes defaulting are outlined in the lien agreement. However, if a lien holder makes a verbal or implied amendment to the contract, the amendments are legally binding. For example, an amendment affecting what constitutes defaulting includes a written or verbal change to the payment due date agreement. Additionally, if a lien holder requires the consumer to purchase collision insurance on the vehicle, the lien holder may repossess the vehicle upon consumer's failure to comply.
Act of Repossession
If the consumer has failed to comply with the vehicle's contractual lien agreement, a lien holder may repossess the consumer's vehicle with no prior notice and at any time of day or night. The lien holder may also enter the consumer's property to retrieve the vehicle without prior permission from the consumer, but must do so in a "peaceable" manner and without entering into an enclosed structure such as a garage. However, it is unlawful for the consumer to knowingly hide or otherwise prevent the lien holder from repossessing a vehicle.
In Texas, the consumer has 10 days from the date of repossession to redeem the vehicle by payment of the remainder of the debt in full, plus any expense the lien holder incurred as a result of the repossession. Upon passing of the redemption period, the lien holder may choose to keep the vehicle, sell the vehicle at a public auction or sell the vehicle to a private party.
If the consumer believes the value of the car is greater than the amount owed, she may demand that the lien holder sell the car rather than keep it. The lien holder must inform the consumer of intent to sell and the date of any auction in which he sells the vehicle. According to Carrion and Associates, the lien holder must sell the vehicle in a "commercially reasonable manner," meaning for a fair market price. The consumer is entitled to funds in excess of the amount owed derived from the sale of the car, minus any costs incurred as a result of repossession and sale.
A deficiency results when the lien holder sells the vehicle for less than the consumer owes. Texas law prevents a lien holder from collecting deficiency payments from the consumer unless the lien agreement contains a clause granting such payments. A judge may not grant deficiencies to the lien holder otherwise.