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D.A.M.
D.A.M., Lawyer
Category: Canada Law
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Im in a strange quandary. My car leasing agent signed a

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I'm in a strange quandary. My 'car leasing' agent signed a contract with me for a new vehicle. He assigned a $3500 'trade in' value on my old vehicle, as part of the new lease agreement and payment schedule. Contract was signed. New vehicle delivered. Former vehicle handed over.

We've had the new vehicle for 7 days; the deal was consummated and finished from our perspective. I receive a phone call on Friday. He is in a great panic. There is a $7000 lien on the vehicle he assigned a $3500 trade in vehicle for.

I told him UP-FRONT that we were 1 year into a '5 year' financing arrangement with Toyota Credit Canada, AFTER a 4 YEAR lease on it. He apparently 'failed to note' this anywhere, failed to do 'any due diligence' on the vehicle despite being given all the info on my vehicle, and then consummated the 'wrong' deal, essentially. He now claims I must either pay (i) $7000 or (ii) $3500 (to bring the lien to $0.00) +$90 more per month on my lease. I want to know where things stand legally? I can't afford the 'new deal'. So he has to undo the deal, correct? Or eat some kind of loss - either returning my old car to me, and honoring the original deal, meaning he made a $3500 error by not presenting me with the right deal, when I know 'nothing' about cars at all and trusted his 30 YEARS of experience in the industry, and prior dealings with him over many years.
Submitted: 4 years ago.
Category: Canada Law
Expert:  D.A.M. replied 4 years ago.
Hello,

1. What Province are you in?
2. What brand was this dealer that you purchased the new vehicle from?
3. What brand is the new vehicle and your new (vs. old) payment under the original deal (and under the new deal)? Is there a difference in the buy-back or per-milage rate cost between the two deals?
4. Why were you interested in getting out of the old vehicle? Did you disclose that information in your discussions with the dealer?


I will be heading into meetings for a few hours but will review and reply this evening.

Regards

Edited by D.A.Mesinschi, Esq. on 3/22/2010 at 9:00 PM EST
Customer: replied 4 years ago.
1. Ontario
2. Mitsubishi Outlander 2010 - $30,000 value. Prior car: Toyota Echo 2005 - 1 year into 5 year 'financing', following a 4 year lease - all with Toyota Credit Canada. All disclosed to leasing company in FIRST discussion regarding the entire deal. I don't know anything about these deals and specifically EMPHASIZED the 1 year FINANCING b/c I erroneously assumed that I would have equity in the vehicle after a 4 year lease 'anyway' YET had even continued to pay for 'yet an additional' year - under the 5-year financing arrangement. So, as he 'now acknowledges', he should have said right then and there - we "can't" 'trade in' the car and put it toward a new vehicle b/c 'first' the 5 year financing has to be paid out (i.e. the remaining $7000 lien, essentially). He acknowledges this error now; he refers to it as something that "slipped through the cracks". That was how he prefaced the entire discussion re: his 'colossal error' on the panicked phone call where he blindsided me and delineated only 'two' options for how we move forward, all of which involve ME paying for his error. Why didn't he say, "I screwed up, so let's share this error" or "I screwed up so I have to 'eat' the $7000 either by respecting the current deal OR I have to 'unwind' the deal completely and allow you to exit it b/c I should never have put it in motion, and it's financially untenable for you?" Instead, he positioned it as "my only remedy" is to pay out the difference which means consenting to a deal I simply cannot afford and would NEVER EVER have contemplated, financially. Yet he claims this is what I 'must do'.

New car came from Brampton Mitsubishi. We didn't qualify for credit through Mitsubishi, so the lease is through the leasing agent's company . It has been signed. Deposit given in cash ($840 = 1st month of lease and admin. fee). I have the receipt, along with the contract etc. (which states that the other vehicle was traded in for $3500 - right there - in the contract - since that's what he told me, and what I 'assumed' was the actual situation - I have no insight in the mechanics of these kinds of 'car switch' deals - I ASSUMED what he told me was correct re: the 'trade in' situation - he has 30 years experience and has done two leases for me before and a total of 22 LEASES through business referred to him through my family!).

Car handed over 1 week ago. Payment has gone from $179.84/month for the 5 year financing for the Toyota Echo to $545/month for the Mitsubishi Outlander (which assumed a $3500 trade-in for the Echo, so would have been $90 more per month without assumed trade-in value). These amounts are in aggregate - including tax. So that jump is very steep; I was already extremely uncomfortable.

Re: buy back and mileage etc., no idea.

4. Everything was extremely clear: I have an 8 month pregnant wife. We have two large breed Irish Setters. We have to have an SUV to travel once our first son is born in a little over a month. That's the reason we were getting the SUV. The Toyota Echo is in perfect working order, has been serviced regularly, was issued safety and emissions certificates for the trade in etc etc. Absolutely nothing wrong with the vehicle - even has 'new tires' bought 2 months ago, and new brake pads. Also, my leasing agent 'sent me' to meet a guy called 'Joe' to appraise my car. He inspected it etc. and offered $3500 'through' the leasing agent' - not to me directly i.e. I met him, he inspected the vehicle, then I heard from the leasing agent that the trade-in value assigned was $3500. So now that I actually KNOW he thought the car WAS 'fully paid for' and was ONLY offering me $3500 for a car that is WORTH $7000, that certainly ALSO gives you some insight in the trustworthiness of this individual. A Toyota Echo 2005 with 100,000 km can be sold on autotrader right now for at least $6000 to $7000; already verified this. But let's put that aside rather than further exacerbate my utter rage and disdain for what has transpired and for the parties involved who I view as entirely culpable.

So now that he has revealed his colossal incompetence, rather than offer to 'undo' the deal or respect the deal, or meet half way, his position is that 'I' must either do one of two things:

1. Pay $7000 into Toyota to remove the lien. Then 'Joe' can have the car for $3500, and then that $3500 can in turn be put toward the SUV, as per the 'assumed, current contract' which we have and have already signed.
2. I must pay the difference b/w the $3500 that 'Joe' was going to pay for the 'Toyota' - that way the lien is removed - and Joe can flip it for a 'substantial profit', as I'm now realizing, AND concurrently I must ALSO pay $90 MORE/month for my Mitsubishi under a 'new contract' I must now sign (which accounts for the other $3500 discrepancy in play).

Either way, I 'must' compensate $7000 for his error - which I never ever would have agreed upon.

I've spoken to MANY people in the automotive world, including Toyota Credit Canada. They say that what has happened is incomprehensible, and that it makes NO SENSE that a leasing agent would not verify that the one car in the equation had a $7000 lien on it when he had all the information on the car and was the middle man in the deal. Even the most basic of due diligence would have revealed this AND I explicitly and emphatically TOLD HIM 'up-front' - EVERYTHING. As I said, I, in my ignorance, actually assumed it was to my ADVANTAGE that I had paid out a 4 year lease AND 1 year of financing.

So there you have the tangled web of nonsense that he has put me in the middle of, and now he thinks the resolution is to further squeeze the vice he has placed my balls in.

I spoke with Toyota Credit Canada and they say that from their perspective, our Toyota is in our name still, we're still liable, and nothing has changed in terms of automated payments being disrupted. So essentially 'Joe' has a car that should be in our possession, since we are technically still paying for it. We have a new Outlander here, with a signed contract in place, that assumes a trade-in value for that 'Toyota' of $3500.

So how do we unravel this? Tell him we want our car back and here's the Outlander back? Can we legally 'demand' this? Can we say we'll keep the new vehicle under the signed contract we already have (so he eats that $3500 trade-in assumption that isn't applicable/correct but is right in the contract) AND we take back the old car, and then sell it ourselves? That means he only loses the $3500. Otherwise, he has to take back a 'new car' that now has 600 km on it (originally had 150km) and he has to deal with the loss in value? Not sure which is the lesser of two evils? What do you recommend? Either way, it's extremely apparent that he thinks he can manipulate us into taking on the full financial burden of an error that has NOTHING whatsoever to do with us. He is trying to force our hand to accept new terms of payment and a new financial arrangement that we would NEVER EVER in our wildest imaginations have accepted up-front, and 1 month before our first son is born, with associated financial expenses. Surely that is not legal?
Expert:  D.A.M. replied 4 years ago.
Hello,

I'm sorry for the situation you find yourself in. Having worked and enjoyed working in the auto industry I can tell you that there are some absolutely excellent, competent, reliable dealers out there and its situations like this that bring the industry into disrepute. Having had a hand in developing dealer-networks in the Canadian auto industry, I have seen these transactions before and am sure that the Dealer Principal (the owner of the franchise) would not be pleased and be putting great pressure on the salesperson to fix this financially.

From a strictly contractual standpoint:

1. You are still responsible to Toyota for the debt on the vehicle even if you do not have title to the vehicle any longer because the debt is personally secured.
2. The Mitsubishi dealer has a claim for reversing the deal (or seeking you to compensate) because the cost of the buy-out was not in the contemplation of the deal.

Your options, however, are in the not-strictly-law realm. You will get further with negotiation here.

You were in what is known as an "upside down" deal. Meaning that you owe more on your vehicle than the vehicle is worth. (The autotrader is a very poor source for vehicle prices because (a) the pieces are 'retail' not trade-in values and (b) the vehicles never actually sell at listed prices. You would need to consult KBB.com lists a 4-door Echo, 100,000kms in good condition at around $3700 trade-in). This results in an unfortunate situation that would increase your leave value well beyond the base cost of the vehicle. The net effect being to increase the sale price of the vehicle you are newly leasing by $3500 to balance the amount you still owe above the trade-in.

Now, I will be very direct in saying that the mistake made by the dealership was a very basic one. Among - if not the very first - inquiry any well-trained automotive salesperson will make is the status of the trade-in from, a financial standpoint ,since that can dramatically affect the cost to the customer. In your case it would increase the lease or finance price of any vehicle purchased by the amount you are "upside down". Having failed to do this the dealer not only did a disservice to you but also to the dealership itself.

Options:

I. Undo the deal.
If you were to fight this in court you would end up somewhere in the middle however, to be perfectly blunt, I think you may be best served by taking the Toyota back and going elsewhere for a deal (and perhaps considering financing over leasing).

If you do decide to take your car back and undo the deal. They'll have to swallow the mileage. It was their mistake. They may pressure you to sign documentation agreeing to pay it, refuse to. If they include it in the return portion of the deal, cross it out on the paperwork, and initial the crossed out portion. If they still refuse unless you pay them, contact Mitsubishi and complain to the District Sales Manager about the dealership (contact information to follow below).


(1) RESIDUAL VALUES: There are SUVs on the market that have better residual values than the Outlander. The residual value of a vehicle have a significant affect on the lease cost of a vehicle since the lease price is calculated based on the residual value of the vehicle at the end of the lease, termed out over the term of the lease. So, if the vehicle is worth 30,000 new and the calculated residual is 33%, the value at the end of the lease is 9,900. That means that you would be paying $20,100 for 36 months resulting in a payment of approximately $558/mth. On top of that, if you return your vehicle at the end of the lease, you will be hit with mileage overages, damage assessments, etc..

(2) VEHICLE: The vehicle you select is a very personal choice so I will tread lightly. I would recommend you test drive a few other models from other manufacturers in that price category and be sure that this is the vehicle for you. Based on your description there are quite a few vehicles that could fit your needs (everything from Estates/Wagons to Mid-sized SUVs). I would pay attention to fuel economy, safety, usability and obviously price. I would also see who's hungriest for the deal. Its a tough market out there and some brands are really willing to deal and have the deeper pockets to offer some good incentives that can offset the "upside down" Echo (or even reduce your payment enough to make keeping the echo a possibility while not being any worse off financially).

(3) FINANCE v. LEASE: Financing is often a better option for many customers than leasing. Unless you are leasing a vehicle with particularly high residual values (BMW is a traditional example) where your depreciation is low or the vehicle is a business-owned vehicle where you can write-off 100% of the leave value on your taxes, leasing rarely makes sense. Even for folks that like to turn cars around every couple of years, leasing is not always a wise financial decision if the vehicle's residual values are not really good. Financing allows you to extend the loan over a longer period of time (I have seen even as far as 72 and 84 months though I would avoid those since interest can be steep) and -- as I am assuming that you would likely put some mileage on the vehicle as you've put 100,000 on your Echo, you have the benefit of not having to deal with turning the car in and fearing for your mileage overages.

While in some situations leasing can result in a lower payment (if, for example, you have a 3 year lease vs. a 3 year finance) the financing can be more beneficial in the long-run.

(4) USED v. NEW: Here's a slightly more controversial bit of advice. Consider purchasing a USED vehicle rather than a new one. Off-lease vehicles in particular can be a great deal (since someone else has paid for the - often very steep - depreciation in the first few years of the vehicle's life. You would have to finance but you would end up with either lower monthly payments (in a longer finance) or a shorter overall payment period.

(5) THE ECHO. I would also consider taking the Echo back and holding on to it as a second car. You owe more than its worth at this point and have a very low payment on it. While it may not be big enough when you're traveling with the dogs I'm sure its perfect for other travels and running errands where you don't need the full size (plus fuel economy is quite excellent in those little cars). The vehicle also likely has life left in it. I would perhaps consider either downgrading the trim level of the vehicle you're looking at (or even look into off-lease/used) and see if you don't end up in the same payment category. Worst case, if the car is really redundant, you can sell it privately and make more (or, technically, lose less) than you would if you traded it in.


II. Elevate the matter
Mitsubishi is located in Mississauga just south of the 401 atXXXXX The listed number is(NNN) NNN-NNNN I would stop short of showing up (lest you be escorted out) but I would call them and ask to speak to the DSM (district sales manager) responsible for the dealership you dealt with and explain the situation.

Again, you don't have a hard case here but something may be worked out for good customer service.

III. Pay-off the Echo and stay in the deal.
I don't recommend this at all. If you are really enamored with the Outlander (which is perfectly legitimate) and you are comfortable with the payment (which I understand you're not) then you can stay as is, offer the dealer to split the difference (meaning split the $3500 balance) and enjoy the new car.


Closing thoughts
Your situation is sadly not uncommon particularly where dealers are under-trained or sloppy.

I will stop short of recommending actual brands, models or dealerships to reconsider (though I would very dearly like to at this point because this particular situation was so poorly handled by the dealer) but I would recommend you do some shopping before you decide anything on this situation. Make sure you cannot get a better deal elsewhere particularly if you're in the situation (as you are now) where the dealer is the one actively seeking to back-out of the deal.

If you hit more roadblocks with the dealer and/or Mitsubishi's DSM, I would recommend involving a lawyer to contact Mitsubishi on your behalf and see if something can be amicably resolved. There are a small number of lawyers who have experience in working with Automotive OEMs in Ontario and have done this but most civil lawyers would likely be able to get some resolution. However, I would try handling this on your own first (though don't sign anything you don't completely understand and are not 100% comfortable with).

Regards XXXXX XXXXX wishes resolving this!







Edited by D.A.Mesinschi, Esq. on 3/23/2010 at 3:12 AM EST
D.A.M., Lawyer
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Experience: Cross-Border (US/Canada) Lawyer
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