The Expert Podcast

So, what do you do if you own a vehicle that you can no longer afford the payments on? If you purchased a new or used vehicle even in the last few years, and because of the interest rate or the price of the vehicle, maybe you bought it at the height of the market. Now, your payments are too high, and maybe other expenses in your life have popped up, making it difficult to afford everything. Your extra vehicle might be one you can’t afford anymore. How do you get out from under that debt and that negative equity?

That's the problem: if you have a vehicle that you owe money on, it's more than likely that the amount you owe is higher than the amount you could sell the vehicle for. Let's say, for example, you owe $18,000 on your vehicle, but it might only be worth $14,000. Sure, one way to get out of it is to just pay the difference, right? Sell it for $14,000, put $4,000 of your own cash into the deal to cover the $18,000, and then walk away. But that’s normally not practical or even desirable. So, are there other methods you could use to get out from under the vehicle?

There is, and it’s called a short sale. You can get more information on our website, carshortsale.com. It’s the same strategy that was used back in the housing crisis of 2008, where people would get out from under their mortgages by doing a short sale on their house. Vehicles work in much the same way, though there are a few differences. Many banks actually have a vehicle short sale program. They don’t advertise it or make it visible because they don’t really want people to use it; they lose money if you do a short sale. If you owe $18,000 and only pay $14,000, they lose $4,000, so they’d rather avoid that.

However, they'd prefer a short sale to a repossession. That’s the one thing to keep in mind: banks don’t want to do repossessions, charge-offs, or write-offs. They’d rather do a short sale because it saves them money. Repossessing the car might cost them $700 to $800 just to transport it to auction, another $700 to $800 for auction fees, and then carrying costs in the meantime—totaling $2,000 to $3,000 per vehicle. Even for a voluntary repossession, they don’t want to go through that. A short sale might be better if you can arrange a sale of the vehicle for market value, and they might absorb the difference.

To maximize your chances, you need to go through a series of steps. You can see on the screen a list of ten steps—ten documents you’ll want to gather, and they’re all available on our website at carshortsale.com. First, get a vehicle condition form. Document the condition accurately; don’t exaggerate or downplay it. If you make it look worse than it is, the lender may do their own inspection, and any discrepancies could lead to the short sale being denied as they may view it as fraud.

Next, prepare a title history report. This shows the current status of the title—whether it’s salvage, rebuilt, etc.—so they can secure it. Then, do a valuation report to determine the current market value based on that condition and title history. The lender will use this report to assess their equity position. For example, if you owe $18,000 and the market value is $14,000, they know their equity position.

Then, contact the lienholder to request a short sale. This process varies by lender; some have forms, others don’t. In cases without official procedures, you can make a formal request for an estoppel letter, which is an agreement from the lender to accept a lower amount. Let’s say they agree to accept $14,000. You don’t have to pay it immediately because you might not find a buyer, but having that agreement in writing protects you. If you do sell it for $14,000, they can’t demand the full $18,000 later.

Once you have the estoppel letter, find a buyer. This could be an institutional buyer like CarMax or Zoom, or a retail buyer, though retail might yield more. Selling through Craigslist or Facebook Marketplace is an option, but requires handling buyer interactions. Once the sale is finalized, obtain a bill of sale showing the sale price. You’ll also need an affidavit confirming the buyer is not a related party, which ensures the sale’s legitimacy. Sometimes, the lender may want an investigation report confirming no relationship between the buyer and seller.

Then, provide a financial calculation sheet. This may include your employment and bank details. If you’re financially stable, the lender might not approve a short sale to cover your debt. Once these steps are completed, the lender should issue a lien release document, clearing the lien from the record and allowing the new owner to apply for the title.

This process is more complex than it sounds, but this video aims to show that requesting a short sale on a vehicle is a way to handle negative equity. The bank, essentially, holds the negative equity. Although you have a contractual obligation to pay, you can request a waiver since repossession would cost the lender more. They know if you’re struggling financially, it’s unlikely they’ll recover the full amount, so a short sale might be preferable.

Remember, we’re not providing legal advice; the lender has the final say. But if you prepare a well-documented package, lenders may waive the negative equity, provided the sale is legitimate and near market value. Lenders do allow this, and in some cases, the policy is even listed in their borrower information.

It’s worth noting that around 70-80% of short sale attempts are successful, according to client feedback. When it doesn’t work, it’s often because the short sale offer was too low or the borrower’s financial situation didn’t meet criteria. If you’re genuinely in a short sale scenario with negative equity, the lender is likely to cooperate.

Attempting this short sale process doesn’t hurt. If you’re willing to spend time preparing paperwork, you can do it yourself without cost. Sometimes, the lender may offer to keep your vehicle and modify your loan, but start by requesting a short sale. Vehicle short sales are powerful tools to relieve yourself of negative equity and a car payment. With this, you could free up $500 to $800 a month, which can help pay bills and support a more secure financial future.