This winter a local car dealership, Ferguson Isuzu, went out of business. I represent a client who purchased a car from Ferguson just before they closed their doors. Ferguson never signed over the title to her or her new finance company. Moreover, the check Ferguson wrote to pay off her trade-in bounced, leaving her with 2 car payments due and no car in her name.
We had a title hearing at the Dallas County Tax Assessor-Collector’s office this morning. The hearing officer reviewed my client’s paperwork and approved an application for title transferring the new car to my client with her finance company as lienholder. The hearing officer told me that there at least 100 similar cases involving Ferguson Isuzu.
The title hearing solved one problem. My client now has title to the car. It didn’t solve her other problem, the fact that she has two car payments to make each month. I’m working with her to get that solved.
I don’t normally make posts about individual clients, and of course, I’m not naming my client or disclosing any confidential information, but given the large number of people who are apparently in a similar situation, I thought it might be helpful if I published some general information about what can be done in this situation.
My client’s problems are typical and have fairly ready soluctions. These solutions will apply to most people, who like my client, allowed Ferguson to arrange financing for their car.
Problem 1: No Title to New Car
This is the easiest problem to solve. In Texas, the county tax assessor-collector has an administrative procedure for issuing title in these situations. Call your local office and ask for a title hearing. They will tell you what papers to bring, typically your sales contract showing that you purchased the car and paid the sales tax, an odometer disclosure if one was given separate from the title itself, and proof of insurance. Assuming you have the documents necessary to document the transaction, they should issue a title in your name. In some circumstances, they may issue a bonded title, in which case you may have to post a bond that is conditioned on no one making a claim to the title. There is an alternative title clearing procedure under the Texas Business and Commerce Code that is superior to a bonded title, but it is rarely used and you will need an attorney to guide you through the process.
Problem 2: No Payoff of Trade-in
If the dealer arranged financing for the new car, you may be able to force the new finance company to pay off the trade-in. Check your finance contract for the following language:
Any holder of this consumer credit contract is subject to all claims and defenses which the debtor could assert against the seller of goods or services obtained pursuant hereto or with the proceeds hereof. Recovery hereunder by the debtor shall not exceed amounts paid by the debtor hereunder.
This language, which is required under federal law for all consumer credit transactions in which the seller arranges financing, allows you to sue the finance company for any claims you might have against the seller. This includes your claim against the seller for breaching its promise to pay off your trade-in.
The finance company’s liability is limited to the amount you have paid under the contract, typically your down payment, the value of any rebates or other similar sales incentives where others pay money to the dealer on your behalf, and the value of your trade-in. As long as the pay-off on your trade-in was less than the total of these amounts, you should be able to force the finance company to pay-off your trade-in. You may have to hire a lawyer to file suit in order to get that done, but if you are successful, the finance company will usually have to pay your attorney’s fees even if they exceed the liability cap under federal law. [Note: the law is fairly clear that the finance company must pay attorney's fees here in Texas, where such fees are typically payable in an action based upon a contract, See Tex. Civ. Prac. & Rem. Code Ch. 38. This may not be the case in other states.]