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Title
Q. When do I get title to my car?
A. In most states, in any sale of a car, new or used, title passes
when the previous owner
endorses the certificate of title or ownership over to the new owner.
Check with your local
Department of Motor Vehicles for the law in your state. Many state DMVs
have
information available on line.
Q. Suppose I sign the contract, but do not yet have title. What
if something happens
to the car?
A. The answer depends on who has the risk of loss. Usually, the
party who possesses the
vehicle bears the risk and is more likely to have insurance against the
loss. Under the
Uniform Commercial Code (UCC), which is discussed in detail later in the
chapter, if the
seller is a merchant (for example, a car dealer), the risk of loss passes
to buyers when they
receive the car.
If the seller is not a merchant, as in a private sale of a used car, the
risk passes to the
buyer on "tender of delivery.
Q. What is "tender of delivery"?
A. Tender of delivery occurs when the seller actually tries to
deliver the car, or makes the
vehicle available for a pick-up arranged by a contract.
Q. What if I have title but the dealer still has the car?
A. A merchant seller who keeps physical possession may bear the
risk of loss long after
the title has passed and after the dealer has received payment.
Q. May the risk of loss move from the seller to me?
A. Yes, the Uniform Commercial Code (UCC) provision governing
risk of loss allows
this. A sales contract that specifies when the risk of loss passes will
override the standard
UCC provision.
Q. How may I lose title?
A. You may lose title if you fail to make your payments as they
become due. The creditor
is then permitted to repossess your car.
The Right To Repossession
When you buy a car on credit, you may have to give the creditor rights
in your property
(the car) that are superior to the rights of your other creditors.
When you are loaned the
money, you sign a "security agreement," which gives the
creditor a "security interest" in
your car (the collateral). You are agreeing to give the creditor a
lien on the car. If you
don't pay, the creditor may try to get the car back and apply its
value toward your debt. |
Q. So if I don't pay, can the secured creditor just come and take
my car away?
A. Afraid so. The only limitation on automobile repossessions
is that the repossessor does
it without breaching the peace. In many states, the creditor does not
even have to sue the
debtor, or notify the debtor of the default before reclaiming the vehicle.
Q. What is a breach of the peace?
A. A breach of the peace generally is any act likely to produce
disorder or violence, such
as an unauthorized entry into your home. If you protest strongly enough
when a
repossessor appears, it may create a breach of the peace, and any repossession
may be
invalid.
Q. What happens after the repossession?
A. Eventually, the creditor has the right to resell. However,
before that happens, the debtor
has the right to buy back the car (in legal terms, redeem the collateral).
Q. How does redemption work?
A. The debtor must pay the entire balance due, plus any repossession
costs and other
reasonable charges. Watch out for consumer credit contracts containing
acceleration
clauses. These force the debtor to pay the entire outstanding debt, not
just the amount of
overdue payments. Because a default and repossession have already occurred,
it is
unlikely that the debtor will have enough money to pay the entire balance.
Redemption
rarely takes place.
Q. What if I do not redeem the car?
A. The UCC gives the creditor two choices. First, it may sell
the car to satisfy the debt. If
the profits from the sale are not enough to pay expenses and satisfy the
debt, you would be
liable for the difference. The only limitation placed on the creditor
by the UCC is that the
sale be "commercially reasonable." As the UCC is applied in
some states, that means first
getting court permission to hold a sale. The sale may be public or private.
However, the
creditor must give you reasonable notice of the time, place, and manner
of the sale. If it is
a public sale, you have the right to take part (bid on the car). If the
sale produces too much
money, the creditor must pass that along to you. For example, if the amount
of debt and
expenses totals BuyBack Protection, and the creditor gets $5,600 from the sale of
the car, the overage
of $600 is due to you and the UCC obliges the creditor to refund the money
to you.
Q. What is the second choice?
A. The creditor may keep the car to satisfy the debt fully. The
law refers to this as "strict
foreclosure." There is no duty to return excess money in a strict
foreclosure. Creditors
seldom use it, because dealers want to sell, not keep, cars.
Used Vehicles
Buying and selling a used car has some unique features, but it is
similar to buying a new
car. The advertising rules are largely the same, so you must still
beware of "bait and
switch" ads that look too good to be true.
Basically, the law about forming and executing the contract for purchase
or sale is the
same for new and used cars, and the car's title transfers via the
same mechanism. Lenders
may examine the purchase a little more closely to ensure they receive
adequate collateral
for their money, but the procedure for getting the money does not
change. As with a new
car, if you fail to pay, you lose it to the "repo" man. |
-
Advertising/Sales Practices
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The New Car Contract
-
Bank Loan Versus Dealer Financing
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