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Lenders Suing Consumers Even After Repossessing Cars

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People often are shocked to learn they still owe thousands on a vehicle when they no longer own it, according to attorneys who work on deficiency cases.

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By MICHAEL SASSO | The Tampa Tribune

Published: December 28, 2008

TAMPA - If you financed a car with a small down-payment, there's a good chance you're upside-down on your loan, meaning you owe more than the vehicle's worth.

Consider yourself lucky if that's your only car trouble. A growing number of Bay area people are finding they can't free themselves from their car debt even after the dealer takes back the keys.

The reason is so-called deficiency lawsuits, in which an order often is issued for a car loan to be paid off in its entirety even after it is repossessed.

They're growing more popular because cars sold at auto auctions sometimes fetch less than half the balance left on the car loan. Even after paying off part of the balance with the auction proceeds, a large gap, or deficiency, remains. Car lenders aren't always ready to forgive them.

Making the problem worse is the poor resale value of SUVs, trucks and big cars at auto auctions. When these out-of-demand vehicles sell for low prices at auction, the deficiency grows.

People often are shocked to learn they still owe thousands on a vehicle when they no longer own it, according to attorneys who work on deficiency cases. Local consumer attorney Mark Tischhauser related one client's reaction.

"They were completely stunned that if they gave the car back they couldn't just walk away from the deal," Tischhauser said. Deficiency judgments are "a microcosm of what's happening in the housing market."

How many people face this dilemma is unclear because no one tracks deficiency judgments. The Tribune found a number of deficiency lawsuits filed in Hillsborough County court, but – perhaps out of embarrassment – none of the defendants would talk on the record.

Here are two examples:

Long haul trucker. For his personal use, the trucker from the Palm River area bought a 2006 Ford F-150 pickup with $28,785 in financing from Ford Motor Credit. He represented himself in the deficiency lawsuit brought by the car lender. He said his tractor-trailer has been sidelined recently with engine problems.

With no income coming in, his home fell into foreclosure and he defaulted on the pickup payments. According to a document filed by Ford Motor Credit's attorneys, from Tampa-based Kass Shuler, the trucker's pickup was repossessed and sold. Even after the sale, a deficiency of $11,941 remained.

Ford Motor Credit sued for that amount in June. On top of the unpaid loan balance, Ford's attorney was seeking $600 in attorney's fees, to be paid by the trucker.

SUV owner. A Town 'n Country man purchased a 2007 Nissan Xterra with $26,535 in financing from Grow Financial Federal Credit Union. In its lawsuit, Grow Financial said he defaulted on his loan, the credit union repossessed the SUV and sold it for $16,000. The credit union then sued for the deficiency of $13,749, including also attorney fees.

In certain cases, automobile lenders who obtain a judgment can garnish wages or force the sale of some assets, said Patrick Smith, a Tampa bankruptcy attorney.

The judgment, Smith said, "can lead someone to file for bankruptcy."

Factors contributing to consumers' problems are the higher cost of vehicles nowadays and the shrinking downpayment, said Dennis LeVine, who often represents car lenders. With so little money down, it doesn't take long before the car depreciates so much the owner owes more than the car is worth, LeVine said.

Low auction prices add to the problem. According to data from ADESA Inc., a major auto auction company, wholesale prices of used full-sized pickups were down 15.7 percent from January through July compared with the same period a year earlier. Full-sized SUVs were down 15.5 percent and sporty cars were down 6 percent.

Among all vehicle types, only compact cars have seen their wholesale auction prices rise, by 9 percent, from January to July, ADESA's statistics show.

"Nobody wants to bid on a Hummer," said Tischhauser, the consumer lawyer. "So, if you own a high-end car and it's repossessed, then you have a problem with the value of the loan and the value that it fetches at auction. The luxury cars are really getting hammered right now."

Some consumers try to fight car lenders in court, arguing that the lender sold the car at auction for less than fair market value. Creditors' attorney Michael Kass, whose Kass Shuler firm represents Ford Motor Credit and other lenders, said lenders can't put a lot of time into selling all their repossessed cars. Even in better economic times, when repossessions are down, they still need an efficient way to sell off vehicles. So they turn to independently run auctions to do it.

To increase the sale price, Tischhauser suggested people behind on their car loans try to sell the cars on their own rather than handing back the keys to the dealer or having it repossessed.

Even though the deficiency suits have boosted his business, Kass said lenders don't want to file lawsuits against consumers.

"The last thing that a lender wants is to hire me or someone like me, because that just costs more money and more aggravation," Kass said.

Car Loan Tips

Some advice from consumer lawyers on keeping your car loan in balance and avoiding a deficiency judgment in court:

Pick the shortest loan payment plan you can afford. Some people are taking out six-year loans. Equity builds so slowly this way you may still owe thousands years into the loan.

Sell off the car yourself. If you lose your car to repossession, chances are the finance company will sell it at auction and often for far less than you still owe. Consider selling the car yourself; you may get more.

Bankruptcy is an option in some cases. There are good reasons to avoid bankruptcy, but if you choose this route, remember: Deficiency judgments are considered unsecured debts and can be dismissed by a judge.

Tribune researchers Diane Grey and Stephanie Pincus contributed to this report.

Reporter Michael Sasso can be reached at (813) 259-7865.

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