There are two legal components to an auto loan. The first component is your unconditional promise to repay the money you borrow. The second component is a lien on your car that you grant to the lender as security for the loan. When a lender repossesses your car, it may not be worth enough money to pay off the full amount of the loan, which could result in further legal action, including, potentially, a lien on your house.
Repossession
Repossession is the lender's exercise of its lien on your car. The lender has the right to take your car back and sell it, then use the money earned to pay off as much of your loan as possible. In many cases the car does not sell for enough money to pay off the full balance on the loan. The amount remaining unpaid is called a deficiency, and you are legally responsible for repaying the deficiency even though the lender has already repossessed.
No Automatic Lien
While an auto lender may potentially obtain a lien on your house, the lender does not have an automatic lien on your house like they do on your car. The lender must go through an extensive legal process before a lien on your house even becomes a possibility.
Deficiency Judgment
A lender can file a lawsuit against you to recover the deficiency that you still owe after a repossession. You can defend yourself in that lawsuit by arguing that the lender has understated the value of your car and that you don't actually owe a deficiency. Ultimately, either a judge or jury will decide whether you are liable for the deficiency. If the court finds you liable then the lender will get a judgment ordering you to pay the deficiency amount.
Judgment Lien
If you still refuse to pay the deficiency even after the lender obtains a judgment against you, then the lender can exercise the judgment by obtaining a lien on your house. In most states, the lender can create a lien by simply filing a copy of the judgment in the county land records for the county where your home is located. Additionally, the lender can ask the sheriff's department to hold a sheriff's sale on your house. The sheriff will sell your home in a public auction, pay off all liens on your house and then return the excess money to you.
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