Notice of sale is very important as it tells you when you will no longer be able to redeem your car. If you do not act before the date of sale, you will lose the car. Notice of sale may be the first time that you hear from your creditor after repossession, if you waived your right to notice of acceleration or if your state does not have a "right to cure" law.

The creditor must give "reasonable notification," which means he must give you sufficient time to take appropriate steps to protect your interests. The timing of notice differs in each state, but creditors usually give notice of sale 10 days beforehand. The notice must be written and accurate in every respect, and most courts require that it specify whether it will be a public or private sale and give details of where and when the sale will take place.

Some courts have barred the creditor from collecting a deficiency judgment where the creditor failed to send the debtor notice even though the debtor actually knew about the sale from another source. Courts have also forced the creditor to pay the debtor the amount that the sale price is diminished because of inadequate notice.

Was the Creditor's Sale Commercially Reasonable?

The creditor sale must be "commercially reasonable" in every way. Commercial reasonableness is not defined, but it is more than creditor convenience. Commercial reasonableness includes the following:

  • Creditor use of car. A creditor's use of the car before sale could be commercially unreasonable. When the car is in the creditor's custody, the creditor has a duty to use reasonable care. If the car is destroyed while in the creditor's possession, the creditor may no longer be entitled to any deficiency. In general, the creditor cannot drive the car unless it is to preserve the car's value - never for personal reasons.
  • Creditor reconditioning the car. It may be commercially unreasonable for a creditor to sell the car "as-is" if preparing the car in some minimal way could significantly increase its value. The creditor may have to "recondition" the car, including polishing, cleaning, tune-ups and paint touch-ups. At the same time, you should make sure the creditor does not put too much work into reconditioning the car, because you will end up paying for all reasonable expenses of car preparation for sale. The amount of reconditioning should be proportionate to the value of the car or must result in a significant increase in the sale price.
  • Creditor delay of sale. The creditor cannot unreasonably delay the sale of the car. If the creditor holds onto a car for too long, the creditor may be barred from collecting any deficiency and may have to accept the car as settlement for the rest of the amount due on the loan. (See "strict foreclosure" under Creditor Disposition). On the other hand, a sale that is too hasty could be commercially unreasonable if it results in inadequate advertising or in a failure to produce a sufficient number of bidders. If the debtor already paid 60 percent or more of the loan, the sale must be within 90 days. To determine whether a delay is commercially reasonable, check how much the car has depreciated during the delay, and consider the storage costs and other seasonal and regional variations.
  • Creditor choice between public and private sale. The choice between a public and private sale must be commercially reasonable and must maximize sale proceeds. However, a low sale price by itself is probably not enough to prove that a sale was commercially unreasonable. You should check wholesale pricing guides, like the publication put out by the National Automobile Dealers Association, to determine whether a sale price was commercially reasonable.

    The creditor must make the car available for inspection before a public auction. If you see that a creditor's preparation for sale is clearly inadequate or if the creditor appears to be selling to itself at a low price, you can try to stop the sale. At a public sale, you can bid for your car. You can also offer to purchase your car at a private sale.

Is There Any Deficiency After Creditor Sale?

After sale of the car, the sale proceeds would first be applied to the reasonable expenses of repossession, then to reasonable expenses of the sale, then to satisfaction of the debt. Whatever is left over (the surplus) must go to the debtor. If there is not enough to cover all these expenses and the remaining debt, the debtor may owe the creditor the amount of the loan and expenses that exceed the sale price, called the deficiency. Under state laws, however, the creditor's right to a deficiency may be restricted. Some state laws preclude the creditor from getting a deficiency, or may limit the deficiency amount if the creditor elected "strict foreclosure," if there was a commercially unreasonable disposition of the car, or if the creditor did not comply with specific notice requirements under state law.

If you owe a deficiency, you should recalculate the deficiency amount to make sure it is correct. Make sure the following is accurate:

  • The remainder due on the loan before adjustments. Obtain the original credit documents, recalculate the total amount due and make sure the credit rates are not higher than your state limits.
  • Unearned interest rebates. The total payment of a pre-computed loan includes interest payments over the full loan term. When a creditor accelerates the loan payments, the creditor is seeking payment earlier than scheduled so the amount of interest that you owe decreases. The creditor should rebate this unearned interest to you, and the rebate should be computed based on a formula specified in the loan agreement or based on state law, whichever is more favorable to you, as of the date of acceleration.
  • Interest and penalties after acceleration. After rebating the unearned interest, your state's laws or the credit agreement may authorize the creditor to charge interest on the amount due from the date of acceleration until you repay this amount. It depends on state law and the contract, but usually late payment charges will not be permitted after the time of acceleration or at the time a deficiency judgment is rendered. A creditor cannot charge both late-payment and extra-interest charges for the same period.
  • Prepaid insurance premiums. You should cancel any prepaid insurance and get a rebate. Also, you should make sure that the creditor does not charge for reconditioning and repairing a car if it is covered by the car's service contract or extended warranty.
  • Value of car. Make sure you are credited the sale price of the car at retail, not the estimated value.
  • Expenses from repossession and sale. All expenses must be reasonable, including all repossession, storage, repair, reconditioning and advertising expenses. The creditor cannot charge you more than the amount the creditor was actually charged. Expenses for sale should be the same as for the creditor's non-repossessed cars. Any attorneys' fees and legal expenses must be reasonable and are governed by the credit agreement and by state law.