Repossession or Surrender of a Leased Car

If you end your automobile lease early in California, either by voluntarily surrendering the car or involuntarily having it taken by repossession, the lessor (i.e., the company which leased the vehicle to you) does not have to allow you to “reinstate” the lease by paying what’s past due. The lessor can deem the lease to be ended, and it can try to charge you an “early termination liability”. An early termination liability is the balance remaining on your lease account after your vehicle is disposed of (usually by auction sale), and the proceeds from the disposition are credited to your account. It is often referred to as a “deficiency balance”.

After your leased car is repossessed or surrendered, you have the right to receive written notice of your potential early termination liability at least 10 days before the car can be sold. The notice must tell you the amounts you will owe on your lease account, without accounting for the proceeds from the sale of your car (since the vehicle has not been sold yet), and about your right to have the car appraised for purposes of determining your early termination liability. If you chose to have an appraisal, you must pay for it and the appraised value will be applied to your account, rather than the proceeds from the auction sale.

After the car is disposed of, you will receive a second notice of your final early termination liability. Importantly, if the notice you receive prior to the sale does not strictly comply the requirements of California law, you may not owe an early termination liability. Any attempts to collect the early termination liability and/or credit reporting of that amount may give you claims against the lessor to eliminate any balance on your account and/or credit reporting of the balance.

The laws regarding the required notices for vehicle leases are complex and can be confusing. It is always best to keep copies of all notices (and the envelopes in which they arrive) and have a qualified lawyer review your situation.