Folding dealers shock car buyers with unpaid liens (unpaid loan at tradeoff)

[Liberal_in_LA]

Folding dealers shock car buyers with unpaid liens

By DON THOMPSON / Associated Press Writer

Published: February 1st, 2009 11:05 AM
Last Modified: February 1st, 2009 11:06 AM

SACRAMENTO, Calif. - The national wave of auto dealership closures has come crashing down on thousands of people who are on the hook for used-car loans that dealers were supposed to absolve.

When a car buyer still owes money on a vehicle he is trading in, the dealer promises to pay off the outstanding loan, then resells the vehicle. But as more dealers go out of business, some are sticking consumers with the bill. Lenders can then go after the previous owner who thought the debt was paid, or repossess the car from the new owner who assumed it came with clear title.

"It's devastating for people when it happens because they have two car payments and they can't afford them," said Rosemary Shahan, president of Consumers for Auto Reliability and Safety, a Sacramento-based nonprofit that lobbies on behalf of vehicle owners. "Their credit is destroyed for no fault of their own because the dealer defaulted."

Regulators in California and other states, including Florida, Iowa and Washington, are seeing a surge in consumer complaints. They warn the problem is sure to grow this year because of the deepening recession and continued trouble in the auto industry.

About a quarter of all car buyers are vulnerable because they still owe money on their trade-in or lease when they buy another vehicle, according to industry tracker Edmunds.com. It's become more common for a driver to owe money on a trade-in as people stretch their car payments over six or seven years to make them more affordable.

Inga and Brian Randle of Elk Grove, a Sacramento suburb, are among those who got burned.

In 2006, they bought two 2001 Mercedes vehicles, a CLK430 convertible and an E320 sedan, finding out afterward that the small Sacramento dealer had not paid off the previous owners' liens.

Creditors called, and the Randles found they owed $40,000 on the old loans.

"I stopped paying on both of those loans because I couldn't afford to keep paying. It's a huge stain on my credit - and I had very good credit," Inga Randle said. "Our life has really been affected by what's going on here."

The Randles now drive 15-year-old vehicles they own outright. Brian Randle is working more overtime to rebuild their savings, and the couple has been dragged into the dealership's bankruptcy proceedings.

[Arger68]

1. I just saw this and was thinking about posting it as well.

Unbelievable that people can have this happen to them.

[Phoebe Loosinhouse]

2. I'm thinking this would happen a lot more with "in-house" financing

If you got your car loan separately on the outside from Chase or Usaa or whatever, they would only accept a clear title in their names to secure the loan. At least I think so.

And, if you trade your car while it still has a loan out on it, I guess it would behoove you to notify the previous lender and ask for a loan discharge in writing.

This is multiple level fraud on the part of the dealership who took the trade-in and then resold it without clearing the lien.

This pops up in real estate too, when you discover that shady closing attorneys have not discharged mortgages when the title tranfers.

[stopbush]

3. MY Buick is a 95, my VW is a 2000. One has 144,000 miles, the other, 88,000.

The radios work in both, the CD and cassette (cassette!) not so much in the Buick. Two parents, two cars, that's all we need. If we need to drive a couple of hundred miles in one direction, we use the Bug. For longer trips, we rent a car for a day or two.

They're paid off, they run well, the insurance is reasonable (with extra coverage, no less), I spend about $500 a year in maintenance on each car (oil changes, radiator flushes, etc) so why would I want to lease or buy a new car?

Call me unAmerican, but I don't believe that buying a new car every three to five years is part of my duty as a citizen...and certainly not some high-end luxury car, even though our household income is around $120k per year. It's hard enough paying the rent, food and the doctor bills.

Not having a monthly car payment is truly one of life's little pleasures.

[alfredo]

4. I buy used. I have a friend in an industry that has a lot of foreign workers.

When they cycle back to Ireland or England, they sell their cars or have someone sell it for them. I can get good cars cheap. I don't have to haggle, they already have them priced to sell fast.