When you finance a car, you give the lender the right to secure the loan with your vehicle. The car serves as collateral for the loan and can be repossessed, or taken away, if you default. Arizona lenders can repossess your vehicle without notice if you stop making payments. However, the lender must adhere to certain laws to ensure the repossession is performed legally.
Both the lender and the car owner have an obligation to "keep the peace" during a vehicle repossession. According to the Federal Trade Commission, a lender is in breach of the peace during a vehicle repossession if it:
- Uses physical force to acquire the vehicle
- Threatens the use of force
- Harms you or damages your property while removing the vehicle
- Removes the vehicle from an enclosed space or garage
Lenders could face fines and penalties if they breach the peace during a repossession. You also may seek compensation if you are harmed during a repossession.
On the other hand, if you have been notified of the intent to repossess the vehicle, you cannot hide or withhold it to prevent the repossession. The lender can claim a breach of peace against you and seek other means to acquire the vehicle, such as getting a court order and police escort to reclaim the car.
Sale of the Vehicle
Creditors have the right to sell your car after repossession to satisfy your obligation. In Arizona this sale is called "redemption of collateral." The sale typically is performed at a public or private auction. According to Arizona Statute, the sale must be performed in a "commercially reasonable manner." In other words, the lender should make all attempts to sell the car for at least its fair market value. Accepting less than market value for the car can indicate the sale was not commercially reasonable, and therefore in violation of the law.
Prior to selling the car, the lender must notify you of the date, time and location of the auction. Arizona law gives you the opportunity to get the car back at any point before the sale by paying what you owe, plus repossession fees and legal costs.
Repayment of Deficiency
After the repossession and sale of the car, the difference between the original amount owed and what the car sold for at auction is the car owner's responsibility to repay. This amount is known as a deficiency balance. If the sales price is enough to cover your loan and repossession fees, you may be off the hook from owing anything else on the vehicle. Arizona law allows lenders to sue you for the amount of the deficiency as well as any additional costs for court and attorney fees. If the lender gets a deficiency judgment against you, it has the right to garnish your wages to recover the amount you owe.
Statute of Limitations
After the lender repossesses your vehicle, it doesn't have unlimited time to sue you to recover any additional money owed. This statute of limitations restricts the amount of time the bank can legally enforce a contract or claim against you. Arizona Statute indicates that the lender has four years to sue you for the deficiency. The time the statute begins is subject to interpretation and can include either one of the following dates:
- The date of the first missed payment, or
- The date the vehicle is sold at auction
Because the loan may have been in default for several months before the lender successfully repossesses the car and sells it at auction, it is up to the courts to determine the start date when calculating if the statute of limitations has expired.