What is the Statute of Limitations for Car Loan Deficiency Balance in Arizona?

[Jeran]

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

After a car gets repossessed, and then sold at auction, how long does a debt collector have to file a lawsuit to collect the deficiency balance in Arizona?

Is it 4 years, as A.R.S. 47-2725 says?

Or is it 6 years, as ARS 12-548 says?

From what I have been able to read and understand from various other people, after a car gets repossessed and sold at auction, the new resulting deficiency balance is treated quite differently from the old debt. It now falls under the U.C.C. statute of limitations which is 4 years. And A.R.S. 47-2725 is almost word for word what the U.C.C. says exactly.

 

[racer72]

Read your purchase contract, it will tell you. Most likely it's ARS 12-548, this covers written contracts typical of most financed car purchases.

 

[Jeran]

My posts don't seem to be getting through unless I leave out the links to the newspaper article, so I will simply quote from our local Arizona Republic newspaper here...

"by Edythe Jensen - Sept. 14, 2011 10:42 AM
The Arizona Republic

...Under Arizona law, a car dealer who repossesses a vehicle after the buyer defaults on the loan can sell the car and credit the proceeds from the sale to the debt, but the buyer continues to owe the balance. The sale could occur at auction and the proceeds may be a fraction of the original sale price. The debt collector has four years to file a lawsuit...

...A.R.S. 47-2725 requires that a lawsuit to collect the remaining balance on a car loan must be filed within four years after the repossession."

And other websites I have looked at stated that a deficiency balance was very different from a normal debt, and that it was governed by the U.C.C. as adopted by A.R.S. 47-272.

But so far, I have been unable to find anyone who knows for sure one way or the other.

I would love to hear from someone who got sued by a debt collector 4 years after the car was auctioned, and if you tried to fight it in court, what happened? Did you win the lawsuit?

It won't matter for the person I am trying to help with this information much longer anyways, since the debt is so old, it is almost beyond the full regular 6 year statute of limitations for all debts in Arizona. And no lawsuit has been filed yet.

I just think that perhaps, a lot of people are getting sued during the period in between 4 and 6 years, not realizing that they could fight against the lawsuit and win. It would be worth a try anyways.

And keep in mind, when a creditor repossesses and auctions off a car, they are using section 47 of the Arizona Revised Statutes (as opposed to section 12 for example), so therefore, the 4 year S.O.L. of that section should apply to any deficiency balance arising out of that section of law.

And P.S.-- we cannot find the old contract. Wish she had kept it in a safe place.

 

[latigo]

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

After a car gets repossessed, and then sold at auction, how long does a debt collector have to file a lawsuit to collect the deficiency balance in Arizona?

Is it 4 years, as A.R.S. 47-2725 says?

Or is it 6 years, as ARS 12-548 says?

From what I have been able to read and understand from various other people, after a car gets repossessed and sold at auction, the new resulting deficiency balance is treated quite differently from the old debt. It now falls under the U.C.C. statute of limitations which is 4 years. And A.R.S. 47-2725 is almost word for word what the U.C.C. says exactly.

Yes, but on the other hand, Arizona’s UCC also states that after the application of the proceeds of disposition of the collateral by the secured party the “obligor is liable for any deficiency”. (ARS 47-9615 Subsection D (2)

Such a deficiency would obviously be a “debt” evidence by or founded upon a written contract and thus subject to the 6 year statute of limitations. ARS 12-548. Contract in writing for debt; six year limitation. .

Moreover, the action of the secured party in seeking a deficiency judgment would not be one framed for a breach of a contract of sale and thus subject to ARS 47-2725. Statute of limitations in contracts for sale. (4 year SOL) As the contract marking the sale of the vehicle would have been previously consummated. Otherwise the "obligor" under the UCC security agreement could not have pledged the title as security for the loan.

However, I agree that the statutes seem to be somewhat in conflict. And your argument (breach of a contract of sale and the 4 year SOL) might even be stronger if the dealer or seller of the vehicle financed the selling price. But then again ARS 47-9616 D (2) above speaks only in terms of of the "obligor", or debtor, and not a buyer or seller.

Interesting question.

 

[Jeran]

I have spoken to several local Arizona attorneys about it, and to paraphrase them, this is what they said...

1. Hardly any debtor for a car loan deficiency ever shows up in court to fight against the lawsuit, and even fewer ever raise the statute of limitations as a defense, so this matter is hardly ever dealt with by anyone.

2. But those who do file a written answer with the court, and use the 4 year S.O.L. as an affirmative defense against the time-barred lawsuit do win in court if the following conditions are met...

A. The car was bought at a local Arizona dealership, and the dealership arranged financing (through any bank, as long as the dealership initiated the action, then the U.C.C. applies). So, for example, if you went to your own bank and got pre-approved for a car loan and then went shopping for a car using that car loan, the 4 year S.O.L. would not work for you. Also, if you paid for the car with a credit card or a credit card check, the 4 year S.O.L. would not apply to you.

B. You lived in Arizona at the time the car was repossessed and sold at auction. The 4 years starts to run the day of the auction.

C. You lived in Arizona the entire 4 year period so the S.O.L. was not tolled.

D. 4 full years have passed since the day of the auction BEFORE they file a lawsuit against you.

E. You file a written answer to the lawsuit asserting the 4 year S.O.L. as an affirmative defense against the time-barred lawsuit within the time allowed to respond to the lawsuit. And you show up to court to present your S.O.L. defense against the lawsuit.


They also said, keep all the documents from them, so that you can prove when the date of the auction was, etc.

 

[Jeran]

Found it!

"BASELINE FINANCIAL SERVICES, Plaintiff/Appellant,
v.
Ruth MADISON, Defendant/Appellee.

No. 1 CA-CV 11-0557.
Court of Appeals of Arizona, Division 1, Department C.

June 5, 2012.

...An action for a breach of contract for sale is subject to a four-year statute of limitations. Ariz.Rev.Stat. ("A.R.S.") § 47-2725(A). Generally, a cause of action accrues when the contract is breached. A.R.S. § 47-2725(B)...Repossession of the Cadillac in December 2007, on the other hand, was an affirmative act sufficient to exercise the acceleration clause...Baseline's action is subject to a four-year statute of limitations..."

So, for those who live in states that have adopted the U.C.C., there is a very good chance that deficiency balances are subject to a 4 year statute of limitations.

If someone sues you 4 years after your vehicle gets repossessed, you can win if you file an answer to the lawsuit and use the S.O.L. as an affirmative defense against the time-barred lawsuit.

 

[latigo]

Found it!

"BASELINE FINANCIAL SERVICES, Plaintiff/Appellant,
v.
Ruth MADISON, Defendant/Appellee.

No. 1 CA-CV 11-0557.
Court of Appeals of Arizona, Division 1, Department C.

June 5, 2012.

...An action for a breach of contract for sale is subject to a four-year statute of limitations. Ariz.Rev.Stat. ("A.R.S.") § 47-2725(A). Generally, a cause of action accrues when the contract is breached. A.R.S. § 47-2725(B)...Repossession of the Cadillac in December 2007, on the other hand, was an affirmative act sufficient to exercise the acceleration clause...Baseline's action is subject to a four-year statute of limitations..."

So, for those who live in states that have adopted the U.C.C., there is a very good chance that deficiency balances are subject to a 4 year statute of limitations.

If someone sues you 4 years after your vehicle gets repossessed, you can win if you file an answer to the lawsuit and use the S.O.L. as an affirmative defense against the time-barred lawsuit.

I suggest that you re-read Baseline vs. Madison.

There the defendant Madison had purchased the repossessed Cadillac from the dealership under an “installment contract of sale” with title retained by the seller.

Thus both the trial court and the appellate court found that the cause of action by the assignee for a deficiency judgment was based upon Madison’s breach of a contract of sale as defined in Arizona’s UCC.

(At paragraph 3) An action for breach of a contract of sale is subject to the four-year statute of limitation. Citing ARS UCC Section 47-2725(A)

It would be a misconstruction of the decision in Baseline to say that every action for a deficiency judgment following a secured creditor’s repossession of pledged collateral is subject to the four year statute of limitations. That is not the essence of the holding.

Assume that rather than Madison purchasing the Cadillac under an installment contract of sale, he had borrowed the purchase price from a private individual evidenced by a promissory note.

If Madison subsequently defaulted on the note, the holder’s cause of action would not be for breach of a contract of sale, but upon a “debt” evidence by a contract in writing subject to the six year period of limitation under ARS 12-548 “Contract in writing for debt – six year"

Under this hypothetical, the fact that the note was secured by a UCC Security Agreement - giving the Cadillac as collateral and entitling the holder to repossess the vehicle upon default in the payment of the note - would not change the nature of the lender’s cause of action as being upon a DEBT!

There would be no logical way to describe such a loan as a contract of sale.

 

[Jeran]

Quoting from the court decision...

"Madison purchased a 2000 Cadillac from Lund Cadillac in July 2003. She financed the purchase, signing a retail installment contract (the "Contract") that contained the following language:

Upon the happening of any of the foregoing Events of Default and at any time thereafter, we may, at our option, and without notice to you, declare all of your indebtedness to us to be immediately due and payable, and we shall have the rights, duties and remedies of a secured party, and you shall have the rights and duties of a debtor, under the Uniform Commercial Code as adopted in the State of Arizona, and without limitation thereto, we shall have the following specific rights: (a) To take immediate possession of the Vehicle without notice or resort to legal process.... If the proceeds of the sale, less allowed expenses, are not sufficient to pay the net amount still owed on this Contract, then, to the extent permitted by law, we may recover the deficiency with interest at the Annual Percentage Rate from you....
Under the Contract, failing to make an installment payment when due constitutes an "Event[] of Default." Lund assigned the Contract to Community First National Bank. Thereafter, Bank of the West ("the Bank") acquired the Contract.

¶ 3 Madison stopped making loan payments in 2006. The Bank internally charged off her loan in August 2006 but did not repossess the Cadillac until December 2007. After selling the vehicle, the Bank applied the sales proceeds to Madison's debt and asserted an outstanding principal balance of approximately $21,000.

¶ 4 The Bank assigned the Contract to Baseline. In November 2010, Baseline sued Madison for breach of the Contract."

As you can see it was a routine auto purchase, where the dealership arranged the financing, just as I said earlier.

The 4 year S.O.L. applies to deficiency balances when the car was purchased at a dealership and the dealership arranges the financing.

And here we are quoting from the Arizona Republic newspaper-- the largest newspaper in Arizona...

""by Edythe Jensen - Sept. 14, 2011 10:42 AM
The Arizona Republic

"Car loans and the law

• Repossession of the car doesn't cancel the debt or stop interest from accumulating. However, any proceeds the lender receives from reselling the car must be applied to the balance due.

• A.R.S. � 47-2725 requires that a lawsuit to collect the remaining balance on a car loan must be filed within four years after the repossession.

• If a lawsuit is filed and the debtor does not respond, a default judgment is likely and collection can include wage garnishment."

 

[latigo]

Quoting from the court decision...

"Madison purchased a 2000 Cadillac from Lund Cadillac in July 2003. She financed the purchase, signing a retail installment contract (the "Contract") that contained the following language:

Upon the happening of any of the foregoing Events of Default and at any time thereafter, we may, at our option, and without notice to you, declare all of your indebtedness to us to be immediately due and payable, and we shall have the rights, duties and remedies of a secured party, and you shall have the rights and duties of a debtor, under the Uniform Commercial Code as adopted in the State of Arizona, and without limitation thereto, we shall have the following specific rights: (a) To take immediate possession of the Vehicle without notice or resort to legal process.... If the proceeds of the sale, less allowed expenses, are not sufficient to pay the net amount still owed on this Contract, then, to the extent permitted by law, we may recover the deficiency with interest at the Annual Percentage Rate from you....
Under the Contract, failing to make an installment payment when due constitutes an "Event[] of Default." Lund assigned the Contract to Community First National Bank. Thereafter, Bank of the West ("the Bank") acquired the Contract.

¶ 3 Madison stopped making loan payments in 2006. The Bank internally charged off her loan in August 2006 but did not repossess the Cadillac until December 2007. After selling the vehicle, the Bank applied the sales proceeds to Madison's debt and asserted an outstanding principal balance of approximately $21,000.

¶ 4 The Bank assigned the Contract to Baseline. In November 2010, Baseline sued Madison for breach of the Contract."

As you can see it was a routine auto purchase, where the dealership arranged the financing, just as I said earlier.

The 4 year S.O.L. applies to deficiency balances when the car was purchased at a dealership and the dealership arranges the financing.

And here we are quoting from the Arizona Republic newspaper-- the largest newspaper in Arizona...

""by Edythe Jensen - Sept. 14, 2011 10:42 AM
The Arizona Republic

"Car loans and the law

• Repossession of the car doesn't cancel the debt or stop interest from accumulating. However, any proceeds the lender receives from reselling the car must be applied to the balance due.

• A.R.S. � 47-2725 requires that a lawsuit to collect the remaining balance on a car loan must be filed within four years after the repossession.

• If a lawsuit is filed and the debtor does not respond, a default judgment is likely and collection can include wage garnishment."

If Edythe Jensen or anyone else claims that “ “A.R.S. Section 47-2725 requires that a lawsuit to collect the remaining balance on a car loan must be filed within four years after the repossession” . . .


Then neither Ms. Jensen nor her ilk have read the statute:

ARS 47-2725. Statute of limitations in contracts for sale

A. An action for breach of any contract for sale must be commenced within four years after the cause of action has accrued. By the original agreement the parties may reduce the period of limitation to not less than one year but may not extend it.

B. A cause of action accrues when the breach occurs, regardless of the aggrieved party's lack of knowledge of the breach. A breach of warranty occurs when tender of delivery is made, except that where a warranty explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance the cause of action accrues when the breach is or should have been discovered.

C. Where an action commenced within the time limited by subsection A is so terminated as to leave available a remedy by another action for the same breach such other action may be commenced after the expiration of the time limited and within six months after the termination of the first action unless the termination resulted from voluntary discontinuance or from dismissal for failure or neglect to prosecute.

D. This section does not alter the law on tolling of the statute of limitations nor does it apply to causes of action which have accrued before January 1, 1968.

Now perhaps there is Arizona case law that says so, although you have revealed none, but the Arizona legislature has not said it is so!

 

[Jeran]

So, The Arizona Republic newspaper, the largest newspaper in Arizona, is wrong, and so is the Arizona court?

I don't know how much clearer it could be.

Madison bought the car through a dealership, Lund Cadillac.

The dealership arranged financing through a bank for her.

The bank eventually repossessed the vehicle for non-payment.

They then sold off the resulting deficiency balance to a junk debt buyer, Baseline.

Who then filed a lawsuit against her for the deficiency balance.

And the Arizona court clearly said this...

"... Baseline's action is subject to a four-year statute of limitations... "


If anyone is out there reading this, and it has been 4 years since your car was repossessed and someone tries to sue you. Don't let them get a default judgment against you. File a written answer using the 4 year statute of limitations as an affirmative defense against the time-barred lawsuit. You might just win in court if you do that. If you don't fight it, they will definitely get a default judgment against you. So, what do you have to lose? You might as well try.

 

[latigo]

So, The Arizona Republic newspaper, the largest newspaper in Arizona, is wrong, and so is the Arizona court?

I don't know how much clearer it could be.

Madison bought the car through a dealership, Lund Cadillac.

The dealership arranged financing through a bank for her.

The bank eventually repossessed the vehicle for non-payment.

They then sold off the resulting deficiency balance to a junk debt buyer, Baseline.

Who then filed a lawsuit against her for the deficiency balance.

And the Arizona court clearly said this...

"... Baseline's action is subject to a four-year statute of limitations... " . . . .

I’ll tell you how it could be a lot clearer to you!

And that is to stopped being obsessed with the false notion that the decision in Baseline vs. Madison stands for the proposition that all actions seeking a deficiency judgement in Arizona are governed by the state’s Uniform Commercial Code four-year SOL!

It does not and to claim it is so is to engage in “troll logic’. *

What Baseline DOES stands for is that an action upon “a breach of a contract of sale” is subject to a four-year statute of limitations as per ARS 47-2725(A).

It DOES NOT say that all actions brought to recover a deficiency judgement are governed by ARS 47-2725(A)!!!

If you read the case with more discernment, you will see that the Appeals Court expressly found that the claim for deficiency emanated from an “installment sales contract”.

In July 2003 Madison “signed a retail installment contract” with Lund Cadillac.

You are likewise mistaken in reporting that:

Jeran - The dealership arranged financing through a bank for her.

This transaction was initially financed in house by Lund Cadillac as per the “installment purchase agreement”.

And it was only after successive assignments of the same “installment sales contract” that the successor owner of the contract (Bank of the West) in December 2007 proceeded with the repossession and sale of the Cadillac resulting in the $21,000 deficiency.

Hypothetically, if subsequent to her transaction with Lund Cadillac, Madison had obtained a loan to pay off the balance of installment contract of sale; had executed a UCC Security Agreement pledging the Cadillac as collateral for the loan . . . . .

Then had defaulted on that loan, the lender would have a cause of action against her based upon a “debt founded upon a written contract” and governed by ARS 12-548’s 6 year SOL.

And not one for “breach of a contract of sale” as was found in Baseline; to-wit:

“We hold that the breach of contract claim at issue accrued when Baseline’s predecessor in interest repossessed Madison’s vehicle under an installment sales contract.”

Having found that the deficiency arose out of a “contract of sale”, the Arizona court would have committed error in applying any Arizona period of limitations other than ARS 47-2725(a)!

___________

[SUP][*] Troll logic: Olaf has red hair. Therefore all people named Olaf have read hair.[/SUP]

 

[Jeran]

I�ll tell you how it could be a lot clearer to you!

And that is to stopped being obsessed with the false notion that the decision in Baseline vs. Madison stands for the proposition that all actions seeking a deficiency judgement in Arizona are governed by the state�s Uniform Commercial Code four-year SOL!

It may not apply to ALL of them, but it does apply to MOST of them. If a person goes out and gets their own loan before buying a car, it does not apply to them. But what Madison did is what most people do when they buy a car. She went in to a dealership, found the car she wanted to buy, and then since you are such a stickler on using exactly the right words, she signed an "installment sales contract" with the dealership, which then turned around and sold off the loan to a bank and the loan continued to be sold off to other banks and finally ended up in the hands of a junk debt buyer who sued her. This is how MOST deficiency balance lawsuits go, so the 4 year S.O.L. applies to MOST of them.



What Baseline DOES stands for is that an action upon �a breach of a contract of sale� is subject to a four-year statute of limitations as per ARS 47-2725(A).

It DOES NOT say that all actions brought to recover a deficiency judgement are governed by ARS 47-2725(A)!!!

But MOST of them are.

If you read the case with more discernment, you will see that the Appeals Court expressly found that the claim for deficiency emanated from an �installment sales contract�.



You are likewise mistaken in reporting that:



This transaction was initially financed in house by Lund Cadillac as per the �installment purchase agreement�.

As are MOST car purchases when purchased at a car dealership. So, yes, again, the 4 year S.O.L. applies to MOST deficiency balances.



And it was only after successive assignments of the same �installment sales contract� that the successor owner of the contract (Bank of the West) in December 2007 proceeded with the repossession and sale of the Cadillac resulting in the $21,000 deficiency.

Hypothetically, if subsequent to her transaction with Lund Cadillac, Madison had obtained a loan to pay off the balance of installment contract of sale; had executed a UCC Security Agreement pledging the Cadillac as collateral for the loan . . . . .

Then had defaulted on that loan, the lender would have a cause of action against her based upon a �debt founded upon a written contract� and governed by ARS 12-548�s 6 year SOL.


And who would do something like that? Hardly anyone.



And not one for �breach of a contract of sale� as was found in Baseline; to-wit:



Having found that the deficiency arose out of a �contract of sale�, the Arizona court would have committed error in applying any Arizona period of limitations other than ARS 47-2725(a)!


Yes, and this is why people should fight back in court if it has been more than 4 years since their car was repossessed when a lawsuit gets filed against them. They have a very good chance of winning.

___________

As a side note, we did finally find the old contract from Courtesy Chevrolet in Phoenix, Arizona, and here is what is says right on it...

"MOTOR VEHICLE RETAIL INSTALLMENT SALES CONTRACT AND PURCHASE MONEY SECURITY AGREEMENT"

So, yes, the 4 year statute of limitations does apply to her situation.


And the Arizona Republic, Arizona's largest newspaper, was right after all.



EDIT: I wish she had found the contract earlier, I just read this part of her contract--

"Upon the happening of any of the foregoing Events of Default and at any time thereafter, we may, at our option, and without any notice to you, declare all of your indebtedness to us to be immediately due and payable, and we shall have the rights, duties and remedies of a secured party, and you shall have the rights and duties of a debtor, under the Uniform Commercial Code as adopted by the State of Arizona..."

That's it. It is over.

That debt is now worthless.

She is going to fax over a copy of that installment contract to the junk debt buyer and also a copy of the Baseline court ruling to them and tell them to cease and desist from any further communication with her.

If they take her to court now, she will fight it and she will win.


People out there reading this post-- go find your installment contract and read it for yourself. It's right there in plain sight.