The U.S. Court of Appeals for the First Circuit recently reversed summary judgment in favor of an auto finance company regarding its compliance with notice provisions regarding Massachusetts deficiency laws.
To make its determination, the First Circuit certified questions to the Massachusetts Supreme Judicial Court. In response, the Massachusetts Supreme Judicial Court ruled that post-repossession and post-sale notices from creditors must expressly describe the consumer’s deficiency liability as the difference between the amount owed on the loan and the fair market value of the vehicle.
The First Circuit case involved a consumer who brought a suit against her auto loan company after the company repossessed her vehicle for non-payment. The company sent the consumer a number of notices explaining that the company intended to sell the vehicle at auction. One such notice described the consumer’s deficiency liability as follows: “The money received from the sale (after paying our costs) will reduce the amount you owe. If the auction proceeds are less than what you owe, you will still owe us the difference.” The consumer claimed the company’s notices violated provisions of the Massachusetts version of the UCC. The district court found that the company’s notices tracked the safe harbor provision of Massachusetts law, which uses sale proceeds from auctions as the measure of a debtor’s deficiency. The consumer appealed the district court’s interpretation and argued that the vehicle’s fair market retail value should be used.
Acknowledging that the interpretation of Massachusetts law was a state court issue, the First Circuit certified a number of questions to the Massachusetts Supreme Judicial Court. The Massachusetts Court determined that the fair market value of collateral was not the fair market retail value. However, the Massachusetts Court concluded that the notices provided must describe the “[debtor’s] deficiency as the difference between the fair market value of the collateral and the debtor’s outstanding balance.” The First Circuit, therefore, found that the company’s notices did not comply with Massachusetts state law requirements and remanded the case to the district court.
The case is Williams v. American Honda Finance Corporation, No. 16-1275 (1st Cir. 2019) and can be found here.