Expert: Timmy Chou - 7/11/2004

Question
Hello and thanks for taking the time to read my issue.  We have a 2002 SUV in excellent condition.  About a year ago, our family's economic situation began to decline and we began to struggle with our car payments. Hoping for a better economic situation, we stuck with it, and so far, in spite of a month after month struggle, we have not missed any payments. However, we have reached our last cent of our savings and cannot continue with this.  A month ago we put the car for sale, with about 1,000 dollars below the actual car's private party price and have not had a single call. We're planning to put the difference of the value of the car (negative equity) if we sell it in order to get out of this debt completely. We've spent about $100 dollars advertising in newspapers, internet, flyers, etc., and nothing.
We've been told to find a person who would take on the notes with the help of an attorney, but still the notes will still be in our name.  I've talked to the bank about giving the car back, but of course, they have not helped because they want us to pay.  We don't know what to do in this situation.  Please help!  thank you

Answer
Thank you for your question!

Mediators act as neutral third parties to disputes and never "get involved" in judging the merits of conflict, but merely use special techniques to help the parties decide how to negotiate their own settlement.

The case you describe here is unfortunately very typical.  I am not a lawyer, nor can I mediate your dispute with just you alone but I can respond to your question from my business consulting experience.  Note that this issue will possibly develop legal implications and you may wish to consult an attorney.

Your situation is very common due to the auto industry's tactic of selling at the highest price possible while focusing on the consumer auto payment.  As long as the payment is affordable, people are willing to pay anything it seems.  What develops though is that the payments do not reduce the outstanding value of the vehicle enough to equal its fair market value over time.  This is what is known as being "upside down" in a car loan.

Unfortunately you have very few real options.  The bank does not want the vehicle back because they will have the same problem selling at the price required as you will--besides they are not in the auto sales business and do not care.  If you default they will re-possess the car and sell it for whatever they can get, and come after you for the difference.  You will be liable for collection and sales costs and interest and lawyer's fees, etc. as well.  

If you sell it yourself you will still be liable for any difference.  Also, the bank will not release the lien on the title unless they are paid in full so it will be difficult to sell the vehicle unless you can pay it off somehow in the deal.

People sometimes will sell a car to a third party and collect payments from that person and in turn pay the bank.  The problem with this is that you have all the risk and they have no risk at all really.  If they stop paying, you are still the one on the hook to pay the bank and you don't even have the car!  I have seen cases where the vehicle was flat out stolen and the people still had to pay $35k to the bank, plus because of the "sale" the insurance company wouldn't pay either.  Unless you have a VERY trusting relationship with the Buyer I would be very careful about a third party sale.  Having a lawyer draft sale documents is no guarantee either as you still have to ENFORCE any agreement in court if they don't pay.  People know that you wouldn't sell if you had money and court costs money so you are an easy scam without alot of leverage to enforce an agreement in court.

You may have to just suck it up and just drive the thing until it is repossesed.  Some people have successfully been able to take advantage of a new car promotion and traded the car in on a new one with smaller payments.  This may only prolong the pain however.

I wish I had better options for you.  

These are some ideas.  Feel free to follow up with additional questions.

For your information, the pros and cons of the types of dispute resolution methods follows.

GOOD LUCK!

Arbitration, Mediation, and Litigation

Arbitration: the referral of a dispute to one or more impartial persons for final and binding determination outside of the judicial system

Benefits of Arbitration:

    Confidential, no public record
    Limited exchange of documentation, information
    Quick, don't have to wait for a court date
    Arbitrators have expertise in the subject matter and are trained in conflict resolution
    Cheaper than litigation
    Preserves business relationships

Negatives of Arbitration

    It's a compromise, no %100 winner
    Complex arbitration can be costly
    If not satisfied, may litigate the arbitration procedure
    Poor results with an unskilled arbitrator
    Both parties must agree to cooperate in the process

Mediation: the process by which parties submit their dispute to a neutral third party (the mediator) who works with the parties to reach a settlement of their dispute.

Benefits of Mediation:

    Neutral mediator can objectively suggest alternatives not considered
before
    Parties are directly engaged in negotiating the settlement
    Can be quicker than litigation
    Less costly than litigation
    Preserves business relationships
    85% of American Arbitration Association cases mediated find successful solutions

Negatives of Mediation

    may not reach a binding decision
    unskilled mediator

Litigation: using the judicial system to resolve disputes

Benefits of litigation:

    a clear winner and loser
    uses a prescribed set of procedures
    more predictable outcomes
    is final

Negatives of Litigation:

    waiting for court dates can do more hare
    usually more expensive than mediation and arbitration
    part of the public record