(What do I do?)
In a typical car purchase at a dealership, a buyer does two things. The first thing they do is find a car to buy and the second thing is negotiating their trade-in. Once everything is agreed upon, the dealership takes possession of the trade-in and the buyer drives off in a new car. It is a simple and straight-forward transaction that happens thousands of times per day in dealerships across the country. Most of the time, there are no issues, however, occasionally there is a major one. Out of the blue, a phone call is received, and the buyer is told that their payment on the traded-in car is delinquent and if the payment is not made immediately, further collection calls will happen and the delinquency will be reported to the credit bureaus ruining their credit score. Panic sets in. You call the dealership and are usually told that it is a mere mistake, and that the payoff hasn’t been processed by the finance company. Some time goes by, and more collection calls and letters are received. The threats of negative credit reporting, repossession, lawsuit, and wage garnishments. Panic sets in. You call the dealership again. More promises that the payoff was sent and that it is a finance company issue. You ask for a copy of the payoff check and the dealer won’t provide it to you. Soon, the dealership stops talking to you. The finance company is pressuring you for the car or the back payments. What do you do?
There is a common misconception that Texas law requires the dealer to make the payoff in a certain amount of time. While there is no mandatory time for a payoff check to be sent, there are many reasons for a dealership to send it as soon as possible. First, the car notes accrued interest daily and the longer that the dealership wait to send the payoff, the greater the payoff amount is potentially cutting into the profit that the dealership expected to make on the car. Second, the dealer must dispose of the trade-in as soon as possible to recover its money since it gave the trade-in’s owner a credit for the value of the trade-in. To do this, the dealer needs to get the title to the trade in which will require the payoff to be sent. This is also addressing that the dealer is contractually obligated to make the payoff timely.
Even though the dealer clearly has plenty of incentive to make the payoff timely, often there are times that this doesn’t happen. Sometimes, the dealer will simply make payments on the trade-in to keep the note from becoming delinquent so that the fact that the payoff wasn’t sent is noticed. Often this is a sign that the dealer is having a cash flow issue. The dealership is hoping to pay off the trade-in when its finances get better. At other times, the dealership is suffering from such financial issues that it doesn’t have the ability to make either the car payment or the payoff. This is the worst place to be. More than likely, the dealership will not payoff the car. They may also sell the trade-in, without paying it off or having the title, causing even more problems for the new buyer.
What do you do if your payoff is not paid off? As a precautionary method, I always recommend that you contact the finance company to confirm that the payoff check was received. This should be done about 7-10 days after the trade-in. If the payoff has not been received, immediately contact the dealership and get as much information as possible as to the payoff check including the date sent, the amount, address it was sent to, etc. The dealership should be willing to provide this information. If they are not willing to do so, then you should contact an attorney as fast as possible because most likely, they have not sent the payoff check and you need to figure out how you want to proceed.
What are the options when you don’t think that the dealership has paid off your trade-in?
1 – You can continue to wait to see if the dealership makes the payoff. There are risks with this option. It is highly likely that the dealership didn’t make the payoff on other traded in cars. The longer you wait, the greater chance that you never get your trade-in paid off. Additionally, your credit will be negatively affected because the payment is late. You can make the payments yourself, which may be an option no matter how you proceed, to protect your credit. You are also financially responsible for these payments until the car is paid off.
2 – You could and should contact an attorney to enforce your rights. Since it is likely that there are others in the same situation, it can become a race to see who can collect first. A competent and knowledgeable attorney will start the litigation process against the dealership and the finance company of the newly purchased car, if the dealer arranged the financing. Amongst the claims that could be made are violations of the Deceptive Trade Practices Act, breach of contract, and depending on how long your trade-in remains unpaid, damages resulting in the negative credit reporting on the late payments.
No matter what option you choose, it is also recommended that you run a title report from DMV as it may show that the trade-in has been titled in a new buyer’s name. There are many potential issues that arise if this happens, but it will help your finance company locate the car they should have a lien on.
When a dealership fails to pay off your trade-in, it is imperative that you act quickly and stay on top of the situation to protect your rights and potentially minimize your damages.
Dealer Obligations Under Texas Law
Once a dealer takes possession of your trade-in and has the proper paperwork, Texas law generally gives them 25 days to send the payoff to the lienholder. While there’s no explicit penalty for late payoff, failure to timely transfer title and clear the lien can violate the Texas Deceptive Trade Practices Act.
Why Payoff Delays Occur
-
Cash-Flow Strains: Some dealers make only the monthly payment to avoid obvious delinquency, hoping to pay off the trade-in when funds permit.
-
Administrative Bottlenecks: Paperwork delays in accounting can stall check issuance.
-
Severe Financial Distress: A dealer may lack the funds entirely and even sell your trade-in without clearing the lien, creating worse complications.
Steps to Protect Yourself
-
Verify with the Lienholder:
About 7–10 days after trading in, call your finance company to confirm receipt of the payoff check. -
Request Payoff Proof:
Ask the dealer for the check date, amount, and a copy of the paid-off cancellation. A reputable dealer should provide this information. -
Run a Title Report:
Use the TxDMV Certified Copy of Title service to see if the lien’s been released or if the vehicle shows up under a new owner.
If the dealer refuses to cooperate, move immediately to the next step.
Your Options When Payoff Isn’t Made
Option 1: Continue Waiting (Risky)
-
Credit Impact: Late payments can hit your credit score as each missed payment reports to bureaus.
-
Self-Payment: You may choose to cover payments yourself to protect credit, though you remain legally responsible until the lien is cleared.
Option 2: Engage an Attorney
-
Why Hire Craig Zimmerman: His firm’s Consumer Protection practice handles auto-fraud and lien-failure cases under the Auto Fraud and Consumer Protection sections.
-
Potential Claims: Breach of contract, Texas DTPA violations, and damages for negative credit reporting.
-
Process: Your attorney will demand payoff records, seek injunctive relief, and, if needed, file suit against the dealership and financing entity.
Key Takeaways
-
Act Quickly: Delays worsen credit and legal exposure.
-
Document Everything: Keep emails, call logs, and screenshots.
-
Know Your Rights: Dealers have 25 days under Texas law; deceptive delays can trigger DTPA claims.
-
Get Help Early: An attorney from CraigZLaw can enforce your rights and minimize damage.
For expert guidance on enforcing your rights and recovering damages, visit the Auto Fraud or Consumer Protection sections on CraigZLaw, or contact us today.
