Although auto loan deficiencies are not the most common form of debt we see in our office, we do regularly see (and represent) folks who are being sued (after their vehicles have been repossessed or “voluntarily returned”) for alleged deficiencies between their outstanding balance and the price at which the vehicle was purportedly sold for.
Although many of the defenses in these types of action are common to collection cases more generally (assignment, statute of limitations, service of process, etc.), others are specific to this particular type of debt.
Over the next couple of months, I will be reviewing various substantive defenses specific to vehicle repossession deficiency cases. Many of these defenses are less well-known but nonetheless powerful and worth considering. Today, we start with defenses rooted in Article 9 of New York’s Uniform Commercial Code
The New York Uniform Commercial Code Provides Significant Protections. For example,
- NYUCC 9-614 provides for detailed notice prior to sale of a consumer’s vehicle. These notice requirements are in addition to the notice required in commercial cases, and include, e.g. a description of any liability for a deficiency, a telephone number to call in order to redeem the collateral and a telephone number or mailing address to obtain more details regarding the disposition of the vehicle; the time and place of any public sale, etc.
- NYUCC 9-615 requires a detailed written explanation of any deficiency to be sent to the consumer following the sale of the vehicle.
- NYUCC 9-610 provides that every aspect of the sale of the collateral must be commercially reasonable, including the method, manner, time, place and other terms of the sale.
- NYUCC 9-623 provides the debtor with a right to redeem the collateral prior its disposition.
All of this would be interesting but academic were it not for powerful but underutilized remedies with regard to consumer UCC deficiency cases:
Some Courts, including those in New York’s Second Department, have held that there is an absolute bar against recovery of a deficiency where the repossessing party has failed to meet its Article 9 UCC obligations in a consumer transaction. Most other Courts have held that non-compliance in consumer and non-consumer cases triggers a rebuttable presumption against recovery of the deficiency. See Coxall v. Clover Commer. Corp., 781 N.Y.S.2d 567, 574, 4 Misc. 3d 654, 661, 2004 N.Y. Misc. LEXIS 714, *15-16 (N.Y. Civ. Ct. 2004) (collecting cases)
Statutory damages, fees and costs may also be available. For example, NYUCC 9-625 entitles a consumer to statutory damages for non-compliance to the interest on the loan plus 10 percent of the principal amount of the loan, as well as actual damages.
Bottom line: If the debt the consumer is being sued on stems from an auto loan or other secured transaction, be sure to go over the facts, including all correspondence, carefully for potential UCC related defenses and counterclaims. A repo notice violation or other UCC non-compliance can completely change the dynamics of the case.