My Customer Died, Now What?

We often receive calls from our dealer members trying to figure out what to do when one of their customers has passed away with a pending retail installment contract. Dealers need to exercise caution when allowing surviving family and friends to attempt to assume ownership roles under the contract or to retain possession of the vehicle.

The usual inquiry is made by a family member such as a child, parent, brother, etc., but can also be a live-in girlfriend or even ex-girlfriend or other unique relationship. Unfortunately, many customers in the BHPH world do not have a will, estate, executor, or army of lawyers to handle their affairs.

Allowing a person not authorized under the Texas Probate Code or pursuant to Letters Testamentary to assume control of a retail installment contract can be problematic.  This is especially true of repossessions and continuation of insurance coverage.  All debts and claims under the deceased customer should typically be handled via executor, but there may be a few other methods to utilize.

Was the family member, or friend a co-signer on the loan?  If so, then the co-signer is generally eligible to assume the role on the retail installment contract. Some retail installment contracts contain what is called a “right of survivorship?  While not common, such provisions may allow certain parties to maintain the contract in force.

Surviving spouse.  Texas is a common law state, so in some instances a surviving spouse may have certain rights to claim any community property, including a vehicle secured by a security interest.  However, a surviving spouse without being a co-signer cannot demand to be listed on the loan or title without instruction from a probate court.

Check for credit life insurance.  Some third-party lenders provide the option to purchase credit life insurance. If the deceased person purchased credit life insurance on the auto loan, that insurer is responsible for paying all or part of the balance of the loan, depending on the terms of the agreement.

Can I try to collect the balance of the note from the deceased customer's family members?  Don't do it unless that party is a co-signer under the contract.  Surviving spouses, relatives, and other beneficiaries will not be responsible for paying any debts. If a will is filed at court, then a debtor may be able to file a claim at that point. Otherwise, it is probably prudent to not attempt to go after other family members.

Can I repo from a dead person? If the note is due and there is no co-signer or letters testamentary issued by a probate court, you may need to repo the vehicle.  While many dealers attempt to be respectful of the deceased's family and offer a “cooling off” period, they need to be wary of creating any waiver or enforceability problems under the contract.

Don't let the surviving family members just assume payments without a signed and executed contract.  Those contracts are unenforceable and may open your dealership up to complaints and litigation.  If the deceased customer was a good person, how can I keep the car in the family?  One possible solution would be via a voluntary surrender of the vehicle with a buy back from the surviving family member or friend.  However, this will be treated as a new sale with a contract and TT&L will be due, but at least the new contract is enforceable and the customer will have a vehicle title subject to your security interest.   


On: 09/13/2019 10:24:01

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