Lemon Law and Negative Equity

What is Negative Equity?

Negative equity is the difference between the trade-in price of a vehicle and the actual amount you owe to the dealer. It is usually created at the time of a new car purchase or lease.

When you owe more in finance than your vehicle is really worth, you are said to be upside down. For example, if you purchased a car that is worth $20K but has a remaining loan of $25K, you are $5K upside down. Assuming that you trade your vehicle in on a new car, you are to pay $30K. The surplus amount of $5K is the negative equity that will be added to your purchase. So, you end up with a much higher price than the vehicle is worth.

Negative equity and California Lemon Law

Lenders report that the number of consumers trading in vehicles where they are upside down on the loan tends to increase sharply. Undisclosed negative equity arises from a trade-in vehicle that is rolled into the price of the new vehicle. If the dealer fails to disclose the amount of negative equity in your car purchase or lease, then he or she violates the law. In such situations, you are rightful to rescind the deal and get your money back. The same way, disclosed negative equity usually becomes a controversial issue in lemon law cases. This is because whether this equity counts as part of the price “paid or payable” for the car represents a heated topic of debate between consumer lawyers and manufacturer defense attorneys.

The law assumes that in a lemon law claim, the negative equity is a deduction to the lemon law refund. This means that the dealer or the manufacturer must replace or repurchase your car with the actual price paid or payable by you.

Generally, negative equity is a complex and confusing issue. It often becomes a conflicting issue in most of the lemon law claims. It is better to have an experienced lemon law attorney on your side who will help you better understand your rights under California lemon law and protect you from some undesirable extra expenses. Our knowledgeable lemon law attorneys are always eager to help you tackle this undesirable issue in a lemon law case.