Sell a car privately or voluntary repossession? [Ontario]

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Gloomfrost

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Sell a car privately or voluntary repossession? [Ontario]
« on: August 13, 2013, 02:04:37 AM »
Hi everyone, I have to say I really enjoyed reading through some of the 17 pages of topics, you have a very helpful community and I am intrigued by the mix of finance with psychology! :)

I am helping an elderly friend go through a CP by offering to purchase his 2012 car from him that is deep under water.

His CP has not officially started yet (paperwork filled out later this week I think).

The outstanding car loan is $29,500. Dealers sell this type of car new @ ~$15,000 (he's got a lot of added warranties and protections which I'm assuming don't contribute to the resale value of the car since it would be dealer-auctioned..)

I'm assuming his trustee is going to tell him to do a voluntary repo then put that remaining balance under the CP. I do believe that after everything, he'll probably get ~$10k for the car to be used under his loan, +/-2000 I guess.

My question is, if I offer him say ~$14,000 for it, will it be better off for him to pay down the loan now, sell it to me then do the CP?

In short; let's say his 'deficiency balance after auction' is $20k, how much of that would he have to pay if it's included as part of the CP.

FWIW I think his current unsecured debt is ~100k and his trustee told him $29,000 for everything, but I'm assuming this is before the car is taken into account...

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Stewart

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Re: Sell a car privately or voluntary repossession? [Ontario]
« Reply #1 on: August 13, 2013, 10:35:37 AM »
Gloomfrost;

It sounds like there are a lot of variables missing in this equation. It would take a lot of "added ... " to bring a car from $15k to double the price to $30k, so I'm assuming it's a higher model with more features/options, and/or he had a lot of negative equity from a previous car to carry forward to the new loan.

That being said, a car can not be sold with a lien on it. That would put him in violation of his contract and allow the lender (lienholder) to pursue legal action against him including, but not limited to the repossession of the collateral (the car).

At this point if he's going down that hard and has a car loan that far upside down it would probably be best to surrender it and let the bank deal with the fallout. I'd advise him to talk to his trustee to see what the options are in that regard.

The other option would be for him to keep it if it's within his budget to afford the payments. If it's that new with that much protection I'm sure it'll last him for several years and it will look good to carry a good auto loan throughout the CP process and have something positive on the credit file after completion.

Unfortunately at this time the option of you buying the car from him is probably the worst of all available options I'm afraid.

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Gloomfrost

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Re: Sell a car privately or voluntary repossession? [Ontario]
« Reply #2 on: August 13, 2013, 11:12:46 AM »
Thanks for the reply,

The car had an MSRP of ~$22k, he added a lot of options (tint, colours, etc), and others cares like extended warranty, tire, fabric etc. He also opted for life insurance and other finance-related costs and after tax it brought the amount to be financed to $34k. This is a 2012 Mazda3 Sky btw, and I went to see a dealer and I can pick up the same car without the extra stuff (that probably won't transfer in an auction since it's owner/dealer related) for ~15k including the dealer's $500 in fees. That's how I got those numbers.

He has $45k in cash holdings going into this process. My question is how much of the deficiency balance after the car was sold will he actually need to pay off if it's included in the CP?

Like I said if the car is sold for 10k, the deficiency balance is 20k; if it's included in the CP does he end up paying like ~8k for it from his cash pile?

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Stewart

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Re: Sell a car privately or voluntary repossession? [Ontario]
« Reply #3 on: August 13, 2013, 05:09:51 PM »
I think there are even more variables - if he has $45,000 in cash going in with only $100,000 in liabilities, I'm sure there's a better way than consumer proposal to handle his affairs.

From the limited amount of information I'm hearing, it sounds an awful lot like a trustee is talking him into something that's not necessarily the best bet for him. Do keep in mind that the trustee's office gets 20% of whatever amount is agreed to be paid to the creditors. If he pays $29,000 the trustee stands to make just shy of $6000 from the whole deal.

Further, a consumer proposal is an avenue for people who don't have the means to handle their debt loads. If this gentleman has the cash to cover literally 45% of his debt load, it doesn't sound to me like the CP is the right avenue.

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Stewart

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Re: Sell a car privately or voluntary repossession? [Ontario]
« Reply #4 on: August 13, 2013, 05:16:48 PM »
As to the car itself, it looks like there's more to that story as well. You'll pardon me for thinking out loud here, because a lot of things aren't adding up.

Doing a cursory online search for pre-owned 2012 Mazda 3's with SkyActive and I see models with SkyActive starting at around $18,000 with 15-20k range. The only 2012 Mazda 3 models I see in the $15,000 range are base 'GX' or 'i' models which are much less equipped than his. Also, these would almost certainly be former daily rental units which sell for significantly less than a one-owner pre-owned vehicle.

Further, dealer fees, if not included in the advertised price, are illegal in Ontario. The MVDA (law concerning the trade of motor vehicles in Ontario) stipulates that a vehicle's selling price as advertised must include all fees, with the exception of tax and licensing expenses.

If he has life and accident/health/disability insurance on the loan, he has an option to cancel that and have the balance of premiums refunded and paid jointly to himself and the lender. He'll only receive a pro-rated amount (likely to the tune of 30-40% of the original purchase premium price) but it will help offset his expenses.

There may or may not be a similar option to cancel any extended vehicle warranty(ies) he may have. He should look into that as well before proceeding in any direction.

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Gloomfrost

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Re: Sell a car privately or voluntary repossession? [Ontario]
« Reply #5 on: August 13, 2013, 06:01:24 PM »
Okay first of all thank you for all the help.

I have more information for you:

The $100k in liabilities does not include the car loan as I said before, and he has no income. He is 55 and unlikely to find another income source in the near future. The $43k cash pile came from selling his house last month, so that's basically the only thing he has left. He currently rents an apartment.

What 'better way' is there for a person in his situation? I know a lot of his liabilities were racked up because of interest, but I'm not sure that makes a difference.

I wouldn't be surprised about the trustee comment, he gets taken for wild rides by random people, he was actually a victim of a nigerian scam and lost a lot of money for that as well.

Again, please provide the avenue you're talking about based on his situation. Ideally he would want to keep about 10k left over to live off for the next year while figuring his life out.

Okay about the car:
I went into a dealer in May and, this is a 2012 model, so they were really discounting it. When I went, the car had a $5k cash rebate which brought the total 'including everything' (not tax) to just around $16k. What dealers PRICE them for now is irrelevant, especially on websites. I specifically went in and talked to a buddy of mine who works for the dealership. You are correct about the options, but they only add up to about $1000 on the car in total. So that brings it to maybe $16,500 at this point in time, depending on how you value the options and extended warranty....

He chose to have life insurance put on for a $2k premium, but no health/acident/disability. Are you saying that can be cancelled at any time??

My question still stands; I want to know how much a CP reduces existing debt from someone coming out of a car loan? I'm assuming it reduces it to 20-40%?

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Gloomfrost

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Re: Sell a car privately or voluntary repossession? [Ontario]
« Reply #6 on: August 13, 2013, 06:16:06 PM »
Also fun fact; the new 2014 y models coming out by Mazda start at I think $18k brand new and they no longer have the old GX engine, in other words, they're ALL going to be skyactiv's going forward. This is in addition to a redesigned interior, a trip computer, and basically everything else that was on the Sky's before, minus maybe heated seats which is in the current GS trim which they'll charge you extra for...

We're talking $18k here for the base model, but who would buy a used (even if in good shape) 2012 Sky for anything more than $15k at that point.

 

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