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Loan Company Still Trying to Collect Payments on Returned Vehicle

QUESTION: I bought a used car from one of Arlington's smaller dealerships. For some reason the dealership could not come up with the title. The temporary 30 day tags expired twice. I could not drive the car for several weeks, and finally had it towed back to the dealership.

While I was waiting for tags, my buddy who works at a body shop checked the car out and found that it had been hit hard in a head-on collision. There was substantial repair work, and he suspected that the frame rails were still damaged. (This explained why we could not get it aligned!)

After the car went back to the dealership I thought my problems were over. However, now I have been sued by the bank that financed the deal. I borrowed $15,000, made a $2,000 down-payment, and paid three months worth of payments for about $900.

I shouldn't have to keep on paying the loan for a car that was returned to the dealership.

Help! R.K., Falls Church

ANSWER: Under your facts, I agree that you should not have to continue paying. Virginia and Federal law support your position.

First, in Virginia, a dealership is required to obtain a title and get a vehicle registered during the first thirty days. If the temporary certificate of ownership expires, ownership reverts back to the selling dealership. If the deal has fallen through because of this, the buyer is generally not liable for the debt.

Under Federal law, and regulations published by the Federal Trade Commission, a lender takes a car dealer's loan assignment subject to any claims and defenses the buyer could raise against the selling dealership. What this means is that if you were cheated -- for example, being sold a car with a bent frame and without disclosure -- the lender "steps into the shoes" of the dishonest dealership. If you are sued by the lender, you have the right to file a counter-claim seeking a refund of your downpayment, payments of $900, and cancellation of the loan. Since this is rather complicated, you will probably want to discuss your rights with an attorney or consumer affairs office.

From the Lessons Learned Department: you made two major mistakes in this used car deal. First, you purchased a vehicle without benefit of an engine, electronics, and body/frame inspection. A decent body shop would have discovered body work, "bondo," repainting, etc.

The second mistake is extremely common also -- failure to determine the status of the car's title before paying over any money. If a dealership says it doesn't have the title, you might want to delay making a down-payment until you see the title. Many folks forget that sometimes titles are lost, forged, reflect salvage status, or disagree with odometer mileage. If the dealership says it has the title, as a minimum view it and obtain a copy for future reference.

Good luck is defending against this lender. If you are lucky, the lendes attorney will understand the law and your rights here.


To obtain a free copy of a dealership's loan assignment to a lender which "steps into the shoes" of the dealership, send a self-addressed, stamped envelope to Car Law at the address below.


The responses published herein are fact specific and intended for general educational purposes. These responses are not intended as a substitute for advice from your own attorney on your particular circumstances.