Recently we talked about how to buy a car with a lien, so today we’re going to cover what happens when that goes wrong. What if the person selling the car incurred a lien on the car title, then sold it to you without saying anything about it? That means you're left holding the bill – but a hidden lien may be invisible until it’s too late.
Hidden liens could include a mechanic’s lien for unpaid services, a car title loan for cash, or a judgment lien where a court has recorded that the vehicle is part of a debt. In any case, a lien is supposed to appear on the title as a brand, printed in plain sight in the Lienholder Information area. But there are ways a car title lien could exist without being on the car title itself.
Not to sound like a broken record here, but this is another example of something that can be easily avoided with one easy step: simply run the VIN number of any car you plan to purchase before you buy it. Take our $10 VIN Check for example: it reveals the presence of any outstanding loans, as well as theft reports and the true title status (clean, salvage, and so on). This easy step will help you avoid the situation we’re about to discuss, because trust me, it’s a bad one.
Before we get into the gory details, in most states the registration process is designed to protect you from this ever happening. It's not supposed to be possible to transfer a title when an active lien (like a car title loan) is involved. But no system is perfect! To prove it, let me tell you a story from my own personal experience. It’s a quick edition of our regular feature Title Gods Stories, the last of which didn’t end so well for me.
Discovering a Hidden Car Title Loan
Recently I was on the market for an RV. I was browsing Facebook, Craigslist, and even the local newspaper day and night trying to find an incredible deal – and hoping to get there first. After a few weeks a Craigslist ad caught my eye: it was a late-model rig with no major problems, listed for a “fire sale” price. Show time!
I saved the seller’s number and called that afternoon, but my call went straight to voicemail. I checked the ad and it was gone. Then, to my surprise, I received a call from the seller the next day.
Turns out he had accidentally listed the RV before locating the title. As luck would have it he couldn’t find it, so he decided to delete the ad for the time being. That’s an easy oversight, and I expressed my interest in buying the RV once he found the lost title.
It later came to light that the seller had forgotten to transfer the RV’s title into his name. Most people don’t know that carrying an “open title” like that is illegal, but after the current owner pays any outstanding taxes and fees everything goes back to normal title-wise. “No problem,” I said, “just let me know when that’s done.”
Then came the biggest plot twist yet. When the owner received his new title in the mail, it was in his name but carried a lien associated with the owner before him. But like I said earlier, that’s not supposed to happen…
The Plot Thickens
The seller and I spoke via phone and concluded that the previous owner took out a loan using the RV as collateral. He did this after paying for the RV with cash and titling it in his name, but for some reason the lender never branded the physical car title to reflect the lien being placed on it. To be clear, this person sold a vehicle with an active lien without saying anything about it!
That means the physical title, for all the world, had appeared to be clean. It was only when the current owner attempted to transfer the RV title into his name that the active lien became obvious. It’s possible the seller made a mistake and wasn’t trying to scam somebody, but either way the result was the same.
How much money are we talking here? $3000 – and that’s before interest and fees. With how much the seller had invested in the RV and how little I’d have to pay him for it considering the loan amount, he elected to keep the RV and try to track down the person who sold it to him. That’s one conversation I’d love to be around for.
My mind then turned to how this situation could have been avoided.
How to Avoid Hidden Liens on Car Titles
A hidden lien on a car title can be avoided if the buyer simply runs the VIN number before purchasing the vehicle.
One of the first things a DMV will do when a title is transferred is run the VIN number. The trouble is, this step doesn’t happen when you’re physically at the DMV. It happens weeks or even months later depending on your state, and by that time a scammer would be long gone.
It’s worth mentioning the DMV made a clear and obvious mistake in transferring that RV’s title with an active lien. The lien should be tied to both the person and the vehicle, and if this happens to you, get in contact with your DMV and notify them of the mistake.
You might be wondering why I was still prepared to make an offer on that RV after everything we just talked about. As the new legal owner of the vehicle, I would actually have several ways to deal with that hidden lien. They all involve two things the seller said he didn’t want to spend: time and money.
What a Title Company Can Do
The end goal would be to have the lien removed from the car title and instead tied directly to the person who created it.
Unfortunately, this situation plays out like a speeding ticket. Most speeding tickets can be reduced to a non-moving violation, but you can’t walk into a courtroom and make that happen yourself. Unless you're an attorney you won’t get anywhere fast. It's just the way it is. Asking a bank to modify or dismiss a loan is the same way – unless you’re a title company.
At this stage, you would need a company like Title Gods to approach the lienholder on your behalf to explore any available options. Success varies: an old loan that hasn't been paid on may stand a better chance of being dismissed, while a new loan (or one with a history of active payments) probably won’t. A small loan may not be worth the lender’s time to collect, where a big loan probably would be. It all depends, but you won’t know until you ask.
What if You Are Victim of a Hidden Lien?
Your best bet is to give us a call at Title Gods after running the VIN number through our VIN Check. We will then identify the lienholder and obtain details about the lien itself before explaining your options and the odds of success as soon as possible.
You would then need to decide whether the cost of our services would be worthwhile considering what you're paying for the vehicle. To help sweeten the deal, you could negotiate a much lower price for the vehicle considering all the time and effort needed to remove the hidden lien from the car title.
In reality, a single call to us should be all you need. That can be our little secret.