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Undisclosed Negative Equity Can be a Basis to Unwind a Contract and Get Your Money Back

“Negative Equity” is sometimes referred to as being “underwater” on a trade-in car or truck.  Essentially, negative equity means that a consumer’s outstanding loan for his or her trade-in vehicle is more than the vehicle is currently worth.  Trading in a car or truck that is underwater or which has negative equity results in the car dealership increasing the amount of the loan that you will be financing in order to purchase or lease a new vehicle.

Although there is nothing in the California lemon law statute that deals with negative equity, California’s Automobile Sales Finance Act (at California Civil Code Section 2982(a)(6)) expressly requires that dealerships within this State itemize the amount of negative equity in vehicle purchase contracts. California’s Vehicle Leasing Act similarly requires that car dealers itemize and disclose the amount of negative equity in vehicle lease contracts. Accordingly, there is nothing per se illegal about negative equity in vehicle transactions so long as the car dealership clearly and expressly itemizes and discloses the amount of negative equity that is being rolled into the new vehicle’s loan. But if the dealer failed to do so, then it likely violated California law.

How Much Money am I Entitled to if a Car Dealership Failed to Itemize the Negative Equity in My Vehicle Purchase (or Lease) Contract?

If a California car dealership failed to properly disclose the amount of negative equity in your motor vehicle purchase or lease contract, then the dealer probably violated the law, and you probably have a legal right to rescind the deal and get your money back.

More specifically, if you purchased a vehicle and the dealership failed to properly itemize the negative equity, then the dealership violated California Civil Code Section 2982(a)(6), and the contract is unenforceable under California Civil Code Section 2983, giving you the right to a refund. If you leased a vehicle, then the failure to properly itemize negative equity violated California Civil Code Section 2985.8(c)(4), and you have a right to rescind the lease under California Civil Code Section 2988.7.

Alternatively, if you leased the vehicle and wish to keep the lease then you can simply collect statutory damages of up to $1,000 under California Civil Code Section 2988.5

If you purchased or leased a vehicle in a transaction that included negative equity and the car dealership did not itemize the amount that you were underwater on your trade in vehicle then call the Vachon Law Firm right now at (858) 674-4100. Consultations are always free.