Today we’re going to talk about what happens when buying a car with a lien goes wrong. What if the person selling the car sold it to you without saying anything about the lien? That means you're left holding the bill – and a hidden lien may be invisible until it’s too late. Today we’re going to cover what happens when buying a car with a lien goes wrong, how to spot one early on, and how to make it go away.
Hidden title liens could include:
A mechanic’s lien for unpaid services
A car title loan for cash
A court settlement lien
In any case, any automotive lien is supposed to appear on the paper title as a brand, marked in plain sight in the Lienholder Information area. But there are ways a car title lien could exist when no such marking appears on the car title itself.
This is yet 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. This will reveal the presence of any outstanding loans in addition to 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, I will tell you that in most states the registration process is designed specifically to protect you from ever encountering a hidden lien. States do this by making it impossible to transfer a car title with an active lien (such as a title loan). Regardless, you should not need to sue anyone or go to court to resolve an outstanding car title loan or one that has been wrongfully assigned to you.
To illustrate this, let me tell you a story from my own personal experience. It’s a quick edition of our regular feature Dirt Legal Stories where our staff bares our most troubling experiences to help you avoid getting into them yourself.
How I Found a Hidden Car Title Lien
Having grown tired of camping in a tent on my cross-country adventures, I recently found myself 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! Or so I thought.
I saved the seller’s number and called that afternoon, but my call went straight to voicemail. I pulled up the ad again and it was gone. But the next day, to my surprise, I received a call from the seller. Turns out he had accidentally listed the RV before he found the title. That’s an easy oversight, so 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 it can easily be fixed so long as the current owner pays any outstanding taxes and fees. “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 carried with it a lien from a title loan that the owner before him had taken out. But like I said earlier, that’s not supposed to be able to happen…
An Outstanding Title Loan Appears
During a quick phone call the seller and I concluded that the previous owner had taken out a loan using the RV as collateral. He had done 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! And that’s illegal!
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. Now it’s possible the seller made a mistake and wasn’t trying to scam somebody, but either way the result was the same: the current owner was stuck with the lien.
How much money are we talking here? Over $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. I’m sure they would have a conversation I’d love to be a fly on the wall for.
That loan was hidden worse than this Mustang. source
In this story, 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. 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 learning the truth about it. That’s because as the new legal owner of the vehicle, I would have several ways to deal with the hidden lien.
They all involve two things the seller said he didn’t want to spend: time and money.
How to Avoid Hidden Liens on Car Titles
Because liens aren’t always marked on the title, the best way to check a car title for liens is to run the VIN number through a checker. Doing so will reveal any active liens including car title loans and mechanic’s liens for unpaid services.
A hidden lien on a car title can be avoided if the buyer would simply run the VIN number before purchasing the vehicle (or the seller before selling it). That’s one of the first things a DMV will do when a title is transferred, but that doesn’t happen until weeks or even months later depending on your state, and by that time a scammer would be long gone.
You should not need to go to court or sue anyone to resolve an outstanding car title lien. Most liens can be reassigned to the correct person by the lender who issued the lien.
What If My Car Title Has a Lien I Didn’t Know About?
If you end up in possession of a car title with a hidden lien, the goal is to have it removed from the car title and assigned directly to the person who created it.
This plays out a lot like getting a speeding ticket reduced. Oftentimes a speeding tickets can be reduced to non-moving violations, but you can’t walk into a courtroom and make that happen yourself. Unless you're an attorney, that is. Asking a bank to modify or dismiss a loan is the same way – unless you’re an attorney or a title company.
At this stage, you would need an attorney or a car title specialist like Dirt Legal to approach the lender on your behalf to explore the available options. Success varies: an old loan that hasn't been paid 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?
First, run the VIN to make sure the lien is active. You can use our VIN Check Service to check for active liens. Then, either find an attorney or call our title specialists at Dirt Legal. We can work on your behalf and talk with you about your options along the way. And trust us, we’ve seen it all before.
Keep in mind that if you’re a buyer, 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. If you’re a seller, you will need to solve this problem to get top dollar from the sale.
Fixing a hidden car title lien is easier than people think: a single call to us should be all you need. That can be our little secret.
We are not attorneys. This article is not legal advice. Cover image source
About the Author
As an automotive journalist, motorcycle racer, SCCA member, and collector of anything with wheels, Justin Dake makes a living out of being a professional car nerd. As a former employee of the State of Missouri, he knows how complex and convoluted state processes can be, and that experience underlies his role as the Editor of Dirt Legal.