Often this question comes up when a dealership closes and vehicles that were traded in on the purchase of another car have liens that never get paid off by the dealer. The lien holder sends a letter to the consumer that their monthly payment is late on a loan they thought had been paid off by the now defunct dealership.

This scary problem scenario does not have an easy or quick solution. The first step is to contact your state dealer board. Almost every state has an administrative agency that may be a subdivision of your state's Department Motor Vehicles or is independent. Virginia has the Motor Vehicle Dealer Board (804-367-1100, Toll Free 877-270-0203, Fax 804-367-1053, or www.mvdb.virginia.gov). Confirm what they know about the dealership closing; find out if the dealership has an insurance bond which most states require the newer dealership to post since it has no track record for being a stable, well-managed dealership; and get the insurance company's name address and where claims are to be filed. Then you contact this insurance company about your claim. Often the bond requirement is a minimum of $25,000, to cover all claims. Thus you should make your claim as soon as possible since the policy limits will be exhausted by other people in your same situation.

Once the bond is exhausted, or if there is no bond, many states have a monetary fund sustained by dealership licensing fees, which has been established to reimburse persons who have suffered loss or damage in connection with the purchase or lease of a motor vehicle due to illegal actions of licensed or registered motor vehicle dealers or salespersons. The amount of the claim will have limits ($20,000 in Virginia), and only covers actual damages and attorney fees, as opposed to punitive damages. Additionally, there may be a limit of the aggregate amount of claims that will be paid for one dealer ($100,000 in Virginia). Virginia's fund is called the Motor Vehicle Transaction Recover Fund. See the Virginia Motor Vehicle Dealer Board's web site noted above for more information. Usually, you must obtain a legal judgment against the dealer for fraud in order to recover. While this may sound daunting, usually the dealer does not respond to the lawsuit and at trial you simply have to put on the evidence of its failure to pay off the trade-in, show the court the late payment notices you received, and show how much this has damaged you monetarily.

This process will take several months; so, before you embark on that route you have to make a preliminary decision: should you make payments on the trade-in you no longer possess or own in order to preserve your credit rating, or, if you cannot afford that, advise the lender what happened, and watch it try to find the trade-in and then sell it and get a deficiency judgment against you for the difference between what you owe it on the trade-in and what it was able to sell the vehicle for at auction. Your lawsuit would be for any monetary loss this has caused you (including damage to your credit), as well as legal fees and punitive damages. But remember the most you can recover from the Transaction Recovery Fund is $20,000 in Virginia, assuming other claims have not exhausted the $100,000 ceiling.