How To Get Out Of A Lien Release With Negative Equity

Understanding Vehicle Financing and Short Sales
So, what is a car short sale and how does it compare to a voluntary repossession, a loan modification, or lean release? Well, a vehicle loan is a financing instrument that’s used to get a vehicle purchase funded when you don’t have all the money. So, if you’re buying a $40,000 car and you only have $3,000 in cash, you would get a loan for the difference. If later on it’s determined that you may have trouble paying for that loan or if you have difficulty covering the payments or if you owe more than it’s worth, you can do several things.

Available Options When Facing Payment Difficulties
You can do a loan modification with your lender and we have an example on the screen of that. You can do a voluntary repossession, which is terrible because it ruins your credit. And you’re still going to owe the difference. So, let’s say if you bought that car for 40,000, you finance 40,000 and then two years later you want to do a voluntary repo. It might only be worth 20. You’re still going to owe probably 35 and you’re going to do the repo. They’re going to sell it for 20 and they’re going to send you a bill for the other 15,000. So, it’s not going to save you that much. They’re just going to hit your credit and they’re going to garnish your bank accounts.

Loan Modification and Car Short Sale Alternatives
You could also do a loan modification where you can contact a lean holder and maybe get them to adjust the terms. You can also request what’s called a car short sale. What this does is it’s a package of paperwork you can put together that shows what your current value is if it’s only $20,000, you can ask the lender, “Let me sell it for $20,000. Let me out from under this out of equity, negative equity, upside down, whatever you want to call it.” Sometimes they call it being underwater in the vehicle.

Short Sale Process and Requirements
And the lender will let you sell it for a fair value. You’re not going to sell it cheap. You’re not going to sell it to your cousin for, you know, 15,000. You’re going to have to sell it in the open market and to show all kind of documentation that you don’t have, you know, a million dollars sitting in the bank. You don’t make $200,000 a year. You’re going to have to prove that it’s a hardship.

Lender Policies and Potential Outcomes
And what they may do, it’s up to the lender, is let you sell it to get out from under it. And then that negative equity, that balance, they may either wave part of it. They may let you make payments on it. They may defer it, they may convert it to a personal loan, unsecured loan based on the lender’s policy, but also based on how good of a package you submit to them. And this is an example from Ally Bank, one of the largest lean holders of what they do for loan modifications.

Lender Program Variations and Documentation
You have a lot of options. Different lenders have different programs. They don’t always make them public. They don’t always make them conspicuous because they really don’t want a lot of people doing them because it costs them money. So, you may have to just submit a standard package of documents. And the link below will give you examples of those to request that your lender allow you to sell the vehicle to get out from under that payment where if you have too much negative equity, you can’t even trade it in because the dealership can’t absorb or digest that much negative equity on a vehicle when even when they’re selling you a new vehicle.

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