New/Old Rules For Automobile Repossessions in Massachusetts

Massachusetts auto loan lenders and buyers got a little more certainty in how to calculate the deficiency owed on a defaulted car loan after repossession and sale of the motor vehicle, as well as new direction as to the contents of notices to consumers about the sales. The case is Rachel C.Williams vs. American Honda Finance Corporation (SJC-12367).

Since lenders are in the business of lending money, not buying and selling cars, they usually sell repossessed motor vehicles at auto auctions. Their goal is to get as much for the vehicle as they reasonably can with the least reasonable amount of effort. Of course, the prices generated in such sales are not considered the best. If Massachusetts lenders subtracted the possibly very low prices they obtain for vehicles at auto auctions, consumers may end up liable for larger deficiencies than if the lender sold the repossessed vehicle some other way.

Massachusetts laws address this possible unfairness. Instead of subtracting the actual sale price of the vehicle from the amount owed, lenders in Massachusetts are required to subtract the fair market value of the vehicle from the amount owed. (Even if this is more than the actual sale price) In order to assist lenders in calculating the fair market value, Massachusetts law states that “periodically published trade estimates of the retail value of goods…” (Blue- and Black Books) are presumed to be the fair market value of the vehicle.

In the case, Rachel C. Williams vs. American HondaFinance Corporation (SJC-12367), the Massachusetts court refused to adopt the plaintiff’s argument that lenders were required to use the fair market retail value of the vehicle in calculating the deficiency. The court said lenders were in compliance with the law if they sold repossessed vehicles at auto auctions, as opposed to private retail sales, so long as when the lenders calculated the deficiencies on the sales, they subtracted the fair market value of the vehicle. The court confirmed the use of Blue- and Black Book valuations in arriving at the fair market value of the vehicle.

Massachusetts has laws requiring certain written notices to customers with defaulted car loans. The court also said the notices had to inform the customers that the deficiency would be  calculated using the fair market value of the vehicle, not some other method.

Massachusetts auto loan lenders should be careful to include the new disclosures in their notices, and if they are using Blue- and Black Book estimates in calculating deficiencies, they can keep doing so. Customers who are behind on their auto loan payments – read those notices from the lender. If the right language is not there, you may have a bargaining chip with the lender if not the basis for a lawsuit.