Car title liens are simply the safeguard for the lender or another party with interest in your vehicle. Basically, when you take out a loan, the title lien is created. This gives the lender the legal right to possess your car if you don’t repay the debt.
If you default on your loan or fail to make timely payments, the lender has every right to repossess your car. This car lien is filed with the Department of Motor Vehicles, creating a public record. It’s also possible that the auto lender might hold the title to the vehicle as well.
When the car loan is paid in full, the lien gets released. Each state uses a different process for this, but it usually entails the lienholder requesting that the DMV update the title. Normally, the owner of the car also receives the same letter for their records.
When you choose to buy or sell a vehicle, it’s critical that you understand the basis of title liens. You don’t want to have any surprises when you go to complete the transaction. If anyone knows this scenario well, it would be Justin, one of our team members at Title Gods. He has his own story to share regarding a title lien on an RV.
What You Must Know Before Buying a Vehicle
If you buy a brand new car, you don’t need to worry about title liens. There can’t be an existing lien because no one has owned it before you. Purchasing a used car is entirely different. You must ensure there’s no lien on a vehicle before you buy it. Otherwise, you could be left paying the balance of the loan yourself or facing repossession.
Thankfully, the process of checking for title liens isn’t tricky. All you need to do is run the VIN of the car you’re looking to purchase. We have the $10 VIN Check that not only reveals any outstanding loans on the car, but also shows the title status and past theft reports. Taking a moment to use this tool might save you time and money in the long run.
What To Do When Selling Your Car
If you plan to sell your vehicle and you have a title lien, you need to take several steps before proceeding. You want to start by paying off the remaining balance so that they will release the lien.
You do this over a few months to budget out the payments better. If you can afford to, it might be easier to pay it off all at once. Just call the lender and get your payoff amount. Then, follow their steps to resolve the debt.
It’s essential you follow these steps. Otherwise you might run into a jam later. There are many reports of people that pay off their car loans and never receive the title. Then, when they go to sell, their title shows a lien on the vehicle. This is, in part, because they didn’t follow through and ensure that the DMV knew about the paid-off loan. Not only does it create headaches at the time of sale, but it could stop the transaction altogether.
If you want to sell the car to a private party or dealer, you could sort out the lien arrangement during that process, if you prefer. Often, a dealership will work with you to pay off the existing loan in conjunction with your new vehicle purchase.
Not Every Lien is Listed by the DMV
Many title liens show up during a vehicle search, but not all of them. Sometimes cars have liens placed that you might not discover at all. For example, if the seller had back taxes due to the government, there might be a lien placed on their vehicle. Thankfully, the buyer is somewhat protected because of IRS Code 6323(b)(2) which stops the lien from interfering in a sale unless the buyer is aware of it.
If the seller tells you about the tax lien, you’ll need to walk away; you don’t ever want to get into a debate with the IRS.
In addition, family courts have the right to put a title lien on a vehicle. If the seller got behind on their child support, the state might put a lien on their car until the back support is paid. When this occurs, the defendant must return their canceled title to them for destruction. Then, the court issues a new title with itself as the lien holder.
No one ever thought that spending money on a vehicle is a good investment, but we all still need to do it. You are already guaranteed to lose money with your purchase over time unless you are restoring a classic. Therefore, it’s vital you make sure that you don’t end up in a situation that’s going to cost you even more money.
Navigating around a Hidden Lien
Once you’ve run your car through the VIN Check tool, it’s time to get in contact with us at Title Gods. We have the resources to hunt down the lienholder and get all the details you need regarding the existing lien.
Once we have a better understanding of what’s going on, we’ll be able to lay out all your possible options. Working with us improves your chance of success and getting the car you want.
Is it worth the cost of our services considering what you’re already paying for the car? That’s a common concern we hear from our clients, and we wholeheartedly think it is. This is why we got into this business; to help people just like you navigate the confusing world of car titles.
You could work the cost of our services into the negotiation with the seller. It’s likely you’ll get a much lower price from them considering the effort and time needed to remove the lien from the title.
It’s okay; let them think that it’s going to take you a lot of work to resolve the title liens. In reality, it only takes one call to us and we’ll do the rest. In the meantime, you can focus on things that are important to you.
We are not attorneys. This article is not legal advice.