When you the consumer take out a loan for the purchase of a vehicle, you generally put up that vehicle as collateral for that loan. In doing so you are creating what is called a security interest, or a secured debt. If you default, meaning that you miss one or more payments on that loan, Texas law grants the secured creditor the right of self help repossession. This means that the secured creditor does not need a court order to repossess the vehicle.
The secured creditor may then dispose of the collateral to recoup some of their losses. Examples of disposition would include a resale, or a sale at auction. The proceeds of the disposition are then applied to the balance of the loan. The creditor, now an unsecured creditor, may elect to bring suit on the remaining deficiency. Ford Motor Credit Suntrust Bank have been filing a lot of these cases. In addition, I've seen Green Tree Financial nd U.S. Bank bringing these on cases involving mobile homes. Some of the debt buyers are also bringing these lawsuits as well. A debt buyer must have a license to hold a Retail Installment Service contract. If not the suit is illegal and ripe for a serious counterclaim. All is not lost for the consumer.
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The consumer still has certain rights under the law, and the creditor has a number of procedures to follow:
First, self help repossession must be done without a breach of the peace.
Second, the creditor must notify the consumer of their right to redeem the property and catch up on the loan before disposition of the collateral.
Third, everything about the disposition of the collateral must be done in a commercially reasonable fashion.
Fourth, the creditor must notify the consumer of any surplus or deficiency remaining after the collateral has been disposed of.
The creditor’s failure to follow any of these procedures may potentially mitigate the consumers damages, bar collection efforts entirely, or even allow the consumer to file a counterclaim against the creditor. Also, if you are sued, the plaintiff bears the burden of proof. Failing to keep good records, or failing to produce a witness with personal knowledge can be very damaging to the plaintiff’s case. If it is a debt buyer that is bringing the suit they also have to prove up ownership of the alleged debt, and they must have a special license to be a holder of a retail installment contract. Contact me to discuss the facts of your situation in detail.
The most common creditors that I see bringing these deficiency suits are Ford Motor Credit and Suntrust Bank.