What Does A Lien Title Mean? 
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Have you ever heard of a lien title?
Few have! It’s important to know what a lien title means and we will cover everything for you in this article.
Buying an automobile can be exciting. You get to shop around and test drive a wide range of vehicles until you find the one you like.
After you confirm the automobile has all the features you need, is in good running condition and is available for the price you want to pay, it’s time to sign on the dotted line, hand over the cash and take possession.
Then, the seller drops a bomb on you. There is a lien title on the vehicle you want.
At that point, you may have lots of questions and not be sure what action to take. The following information may help you decide.
What Is A Lien Title
A lien title on an automobile means some entity other than the person listed as the owner on the title has some control over the vehicle. That usually is a private citizen, bank or finance company.
Having a lien title means ownership of the vehicle cannot be transferred without that entity’s permission.
Often a vehicle has a lien title because it has not been fully paid for or was used as the collateral for a loan.
In that case, to get a clean title, the holder of the lien must be paid the money they are owed, or they can legally have the vehicle repossessed and sold so they can get their money.
In some cases, the government may place a lien on an automobile if its owner owes back taxes to the IRS or money to some other government agency.
If that money isn’t paid, the government can seize the vehicle at any time. Purchasing a vehicle with a lien title means the new owner may be held responsible for the money that led to a lien being placed on the vehicle.
Often the new owner will not be able to legally register the vehicle until the money owed on it is paid, and a clear title is issued.
Buyers should make sure the lien is removed before handing over any money, or they risk losing their money and the vehicle.
Buying A Car With A Lien Title
While it is not recommended, it is possible to purchase a vehicle that has a lien against it.
However, the buying process is a lot more complicated.
When a person buys a car with a lien title, it may not be possible to transfer the tile into their name, insure or register the vehicle or get a loan to purchase it.
Plus, the buyer runs the risk of having the vehicle repossessed through no fault of their own if they do not make sure the lien on the vehicle has been discharged before completing the purchase.
If you still want to purchase the vehicle even though you know it has a lien on the title, the seller can refinance the money they owe on the lien as part of a line of credit or a personal loan that doesn’t list the car as collateral.
You can also negotiate with the seller and agree to pay the money necessary to satisfy the lien as part of the purchase price.
The seller would receive whatever balance of the negotiated price there is after the lienholder has been paid in full.
It is essential to get this agreement in a written binding contract before paying off the lien on the title.
Without a binding contract, the seller can walk away after you pay off the lien and you will lose your money.
One way to handle this process is to have the buyer, the seller, and the lien holder meet to handle the transfer of the title.
The buyer then gives the owed money to the lien holder, they sign the title, therefore, releasing the lien, and the seller collects the balance they are owed and signs the title transferring ownership to the buyer.
Unless a straightforward arrangement similar to this can be set up, it is best to avoid purchasing a vehicle with a lien title.
For most people, this becomes a financial and legal headache that can drag on for years and the new owner never gets to drive the vehicle until the situation is resolved legally.
How To Put A Lien On A Car Title
Putting a lien on a car title is a simple process. People do it all the time to protect their financial interest in an automobile or as a way to collateralize a loan.
All that is required is the title to the vehicle, a completed application for a non-negotiable title and a processing fee.
In many states, the process of getting a lien put on a car is handled either at the department of motor vehicles or the county tax office.
Many people get a lien placed on car titles when they are selling a vehicle, but the buyer has to make a series of payments over a period of time before the sale can be completed.
By putting a lien on the title of the vehicle they are selling, the seller ensures the buyer cannot transfer ownership of the vehicle to someone else or use it as collateral for a loan until they have completed the purchase by paying the seller in full.
In some states, to put a lien on a car title both the seller and the buyer must sign a purchase agreement documenting the vehicle’s purchase price, the amount of the payments, what dates they are due and what remedies will be taken in case the buyer defaults on their payments.
A new title is then issued with the buyer as the registered owner and the seller as the lienholder and legal owner.
When the purchase price is paid in full, the lien holder can merely sign the ‘Lien Release’ section of the title.
The new owner can use this to prove ownership or have a new title issued that only has their name on it.
If someone owes you money, you can put a lien on his or her automobile. This is true whether it was a personal loan or payment owed for storage fees or work done on their vehicle. If it is private debt, you must first sue and win in court and have a judgment issued against the debtor.
You can then use that judgment to have a lien placed on their automobile to ensure you will get your money.
To put a mechanic’s lien on an automobile, you will need documents proving you are owed money, as well as a completed ‘Entry of Lien’ form to complete the process of placing a lien the debtor’s vehicle.
In some jurisdictions, lien holders can have the sheriff seize the debtor’s vehicle, sell it and give the lien holder the money they are owed.
Buying A Car With A Lien From A Dealership
When you purchase an automobile, and it is financed through a dealership, there is a lien placed against the vehicle by the lender.
You can also buy from a dealership a previously owned vehicle that has a lien on the title because the previous owner still owed money on it.
In most cases, the dealership adds the unpaid portion of the old loan to the loan of the new buyer.
In some rare cases, people purchase vehicles from a dealership, and when they attempt to register them, they are told there is a lien on the title that prevents the transfer of ownership.
Generally, the dealership is quickly able to resolve the situation, and the buyer is then able to register the vehicle.
If for some reason the dealership is not able to resolve the situation promptly, the buyer can return the vehicle and is entitled to receive a refund of any money they paid to the dealership.
Car Title Lien Release
A car title lien release is a letter or document which verifies a vehicle doesn’t have a lien against it and no longer does a lien holder have a claim on it. This is also referred to as a clearance letter.
It is issued when a financial institution or private individual relinquishes the claim they once had to an automobile once the debt owed on it is paid in full.
The letter usually contains the year, make, model and vehicle identification number of the automobile as well as the lien holder’s information.
This letter is considered a legal document and is sometimes necessary for the process of transfer ownership of an automobile.
Buying A Car With A Lien On It From A Private Party
Although it is widely discouraged, it is possible to purchase an automobile from a private individual which has a lien on it.
However, the buyer must be aware of the risks involved in this type of transaction.
It is advisable that the buyer make sure the seller has taken care of any liens against the vehicle’s title before the sale.
If the seller tells the prospective buyer that there had been a lien against the vehicle’s title at some point, the buyer should require the seller to present a valid title lien release along with the title before turning over the money needed to close the sale.
The title release letter, along with a bill of sales and the old title can then be taken to the department of motor vehicles to transfer the vehicle’s ownership.
Unless the seller can present proof of the lien against the title of the vehicle they are selling has been satisfied and lifted, buying the vehicle can be a very risky move.