Vendors Single Interest Insurance on an auto loan in PA.

[fred911]

What is the name of your state (only U.S. law)? PA

Here's a quick question and a situation for a deficiency balance on a PA auto contract. A friend is a co-signer on his wife's vehicle (not a registered owner). The installment contract included a GAP policy. The buyer allows the physical damage policy to lapse and then there is a total loss of the collateral. I don't know the time span between these two. The buyer is now deceased and the lender is trying to collect the deficiency balance from the endorser. There's no estate issues involved here. The lender is trying to collect the full amount of the balance of the loan, stating that there was no physical damage coverage on the vehicle at the time of loss.

Question is, is a lender that financed GAP, had proper notice of policy cancellation, required to protect the endorser with VSLI? I have seen many retail installment contracts that state the lender "may choose" to purchase the coverage and I haven't specifically seen his contract. Wouldn't the lender in the normal course of protecting their collateral automatically slam VLSI on the contract so there's no lapse of coverage nor exposure? It would seem to me that if there wasn't coverage in effect, the buyer and the lender are both in default and negligent

We can assume that there was no equity at the time of loss and had there'd been PD coverage the GAP would pay the deficiency. I know I'm speaking in theoretical's without seeing the paper. Can anyone with professional accreditation provide an opinion whether or not the lender has any negligence in not protecting the endorser of the contract? Is not applying VSLI negligent?

Thanks

 

[FlyingRon]

Venders Single Interest (VSI) doesn't protect the BORROWER even if it were placed. They (or their VSI insurer) can still come after you for the bad debt.
There's also likely to be a provision that they have a lender-placed insurance policy (and bill the customer for it), they have no responsibility to do so.

The GAP insurance is most likely INVALID even if there was a lender-placed insurance policy. Possibly if it was a real insurance policy the "gap" might still be covered, but you're still liable for what should have been paid by the casualty insurance. Many lender's GAP "insurance" aren't really insurance, just an agreement to waive the "gap" in a total loss.

You're 100% responsible for the balance of the loan.

 

[fred911]

Venders Single Interest (VSI) doesn't protect the BORROWER even if it were placed. They (or their VSI insurer) can still come after you for the bad debt.
There's also likely to be a provision that they have a lender-placed insurance policy (and bill the customer for it), they have no responsibility to do so.

The GAP insurance is most likely INVALID even if there was a lender-placed insurance policy. Possibly if it was a real insurance policy the "gap" might still be covered, but you're still liable for what should have been paid by the casualty insurance. Many lender's GAP "insurance" aren't really insurance, just an agreement to waive the "gap" in a total loss.

You're 100% responsible for the balance of the loan.

Thanks for your reply, and it's not my debt. I understand exactly what GAP is (in this case it wasn't the lenders policy) and what VSI is and how it protects the LENDER. Can I assume you are saying the lender isn't obligated to slap VSI on the contract if/when they're notified there's no PD coverage, that's it's just their option?

It really leaves a guarantor who's not an owner of the collateral in the "trick bag". The loss payee is always notified (and normally provided and extra 30days coverage) if there's going to be a cancellation, the guarantor gets none of the notification or protection.

 

[LdiJ]

Thanks for your reply, and it's not my debt. I understand exactly what GAP is (in this case it wasn't the lenders policy) and what VSI is and how it protects the LENDER. Can I assume you are saying the lender isn't obligated to slap VSI on the contract if/when they're notified there's no PD coverage, that's it's just their option?

It really leaves a guarantor who's not an owner of the collateral in the "trick bag". The loss payee is always notified (and normally provided and extra 30days coverage) if there's going to be a cancellation, the guarantor gets none of the notification or protection.

I am going to disagree slightly with the previous response. Had the lender chosen to cover the collateral then the lender could not both collect on that policy AND require the guarantor to pay the loan balance. They could only collect the difference between what their policy paid out (and perhaps the cost of the policy) and the balance of the loan.

However, its also true that the lender is not required to cover the car for physical damage...and those types of policies can be extraordinarily expensive for lenders as the lenders have no control over who is driving the car and where it is kept. That type of reaction is far more prevalent for real estate and/or business equipment than for automobiles.

A guarantor or cosigner has an obligation to keep track of what is going on regarding any debt that person guarantees or cosigns for. This is a situation where the guarantor was actually married to the primary borrower, and certainly had the ability to be aware that coverage had lapsed, and the opportunity to replace the coverage...or should have been aware.