Can I defend against a deficiency balance on an auto loan?
Did the creditor provide you the required notices as provided by Article 9., C.R.S. § 4-9-611-616.?
An attorney can assist in determine whether the notices complied with the law. The lender must provide you the date, time, and location of the sale. You are entitled to attend the sale and bid. The second notice must tell you whether you are liable for any deficiency. In most cases, the notices are not in compliance if they are provided at all.
Did the lender sell car in a commercially reasonable manner, C.R.S. § 4-9-610?
Your attorney can allege the sale was not conducted in compliance with the statute, most are not, and the burden will shift to creditor to prove the sale was in compliance. The fact is, most post-repo auction sales are not in compliance because it is more profitable to sale the vehicle for less than fair-market-value.
Why do auto lenders sell repo’d vehicles for less than fair market value?
- Credit Default Insurance. If lender receives less than what is owed on the loan, the insurance compensates for the difference.
- The lender can also collect on the deficiency balance at 21%
Most states, including Colorado, bar a creditor from collecting a deficiency balance if the sale did not comply with the notice requirements or commercially reasonable standards.
Another possible defense is the Statute of Limitations.
Under Colorado law, if the contract says the laws of Delaware apply (three years), then Delaware’s SOL applies. Most debt collectors do not understand this law and violate it routinely. They get away with it because most consumers (understandably) don’t understand the law either. The SOL is an affirmative defense meaning that unless the borrower asserts the defense, it doesn’t apply.
If you have other substantial debts beyond a potential deficiency balance, it may be better to file personal bankruptcy.