Buying a car is usually an exciting experience. You’ve been eyeing the car for a while and finally get to pounce on it. You’ve been responsible and saved up cash for the purchase. Everything checks out; you’ve got the clean title in hand and the key to the car. Everything checks out…until you get to the DMV.
It turns out the car had a lien on it that the owner didn’t tell you about, and the seller took the money and ran. What can you do about it? Or, can you do something about it at all? Time to find out.
Signing Over a Car Title: More Than It May Seem
Signing over a car title is easy enough. You follow the instructions on the title (all states are a little different but cover basically the same things), sign it, make sure the seller signs it, then you take it into the DMV, pay fees, taxes, and registration, and you get a new title in the mail a few weeks later.
If you bought the car with a lien, the bank will hold the title until the lien is paid in full.
Pretty easy, right?
Well, here’s the thing: sometimes the title has a lien hidden against it. Technically, these are called unresolved financial obligations. Practically, these are called massive headaches that could leave you empty-handed with no car at all.
Unresolved Financial Obligations, aka Big Headaches
Ok, so these are not liens in the traditionally thought-of sense. See, when you have a traditional lien placed against a vehicle, it appears on the car’s title itself. Most liens originate from a bank as part of an auto loan. The bank’s information is placed on the title, to then be removed when the loan is paid off and the bank no longer has any interest in the vehicle. At that point, the bank releases the title and you get a fresh copy in the mail a few weeks later with no bank information on it.
Hidden Liens
But there is another kind of lien: hidden liens. Hidden liens don’t show up on a car title because they are not from a bank or any other financial institution.
Instead, you find out that hidden liens are usually tied to some sort of court-ordered obligations and the vehicle is being held as collateral. The problem is that a potential buyer has no idea at all that these exist. In fact, he or she will probably not even know they are there until they take the title in for transfer. And then, they might just get stuck holding the bag for a con artist who ditched the car under the auspices of a “clean title” fully knowing about the hidden lien.
That’s you in that scenario, by the way – the one getting taken advantage of – and while it isn’t always a product of a con artist or nefarious character lying to you, hidden liens can slip by regular people and go unnoticed for a long time. You could buy from a perfectly honest seller who doesn’t know anything about a lien on their vehicle, because, as you may have guessed, people can place liens for scammy reasons without people’s knowledge.
And while it’s rare enough that you may never have encountered it, it’s a prevalent issue in the US car market to the point that many states provide portals to search for liens on your own vehicle – something you would think a person would already know about. Like this Missouri portal, for example.
So hidden liens are rare enough that you may never have seen one before, but common enough that it’s good to know how to defend yourself against them. Here’s just one example of how that could play out.
What if the Titling State Requires a Lien Release for Transfer, and You Don’t Have One?
That overly specific situation actually happened to me recently. Thankfully, we were able to come up with one because this is an absolute show-stopper and can leave you holding the bag for a vehicle that you can’t even end up titling.
What is a Lien Release?
A lien release is a simple enough thing. When the loan has been satisfied, i.e., paid off, the bank issues a lien release which must accompany the title for registration.
Most states require a lien release to accompany the title. In our case, we purchased a van from neighboring Missouri. The van had a lien on it through Ally bank, and in order to satisfy the DMV, a lien release had to be issued by Ally to state that all debts were settled and the title was free and clear.
When I reported to the DMV, they were adamant that the title could not be transferred without a lien release.
Who Issues a Lien Release?
So, the lien release is exactly what it sounds like: it is from the owning bank and is issued to the buyer of the vehicle stating that the loan is paid in full, and the car can now be titled to the buyer.
Again, if there is a lien on the title for the car you are buying, you must ensure that you have a lien release in hand. Otherwise, you will just own some expensive yard art. In my situation, because the lien originated from a legitimate source, it was easy (albeit time consuming and somewhat frustrating) to get a lien release and move on with life.
Hidden liens are rarely from sources that are as helpful and forthcoming as a bank. And that isn’t a high bar.
The thing about hidden liens is they move with the car title, not the car’s owner. If you buy a car with a hidden lien, perhaps from a mechanic or storage facility, that lien becomes your responsibility. Not a pleasant thing to have happen.
How About Buying a Car With the Title Already Signed? Is That a Sign of a Hidden Lien?
You should be extremely leery of any car where the title has already been signed or tampered with at all.
The DMV tends to be finicky about things like car titles, so your safest bet is to make sure that the title is clean and tidy.
With that said, no. This is not the same thing as a lien release or as a hidden lien. You just might catch flack from the DMV when you go in to transfer it, particularly if anything beyond a signature was already on it. If it was already dated and the dates don’t match up, you might not be able to get it done.
Even just stray marks are enough for the DMV to reject the title application. At that point, you can only contact the seller and beg them to order a replacement title and start all over again.
TLDR: A hidden lien could still be present, but the title being signed is a completely separate issue.
How To Transfer Car Ownership the Right Way
Every state is different, so you might want to check out a reputable website like www.dmv.org to see what your state requires. It should link to official state websites that will provide detailed instructions on what you need to do.
Make sure to check back often, too; for example:
Until a few years ago, Kansas still required you to have titles notarized, which meant you had to personally go to a notary along with the seller to transfer the title. This probably wasn’t the worst idea in the world but was inconvenient. For a highly rural state like mine, you might not have a notary within 30 miles or more.
Good or bad, notaries are no longer required here in Kansas, but who knows what all is required in the rest of the states? You need to read it all first because, like I said, even a stray mark can throw off the whole thing.
But as long as there aren’t any stray marks or other discrepancies, transferring titles is usually straightforward unless you are in California or another CARB-compliant emissions state, or one where you need to pass a smog inspection.
Hidden liens will be revealed when you get to the DMV, but you can do your part to try and flush them out beforehand with the following tips.
How To Avoid Hidden Liens on Car Titles
As always, the most painful part of the process is the DMV. Everything else is simple. Money changes hands, keys change hands.
It is fairly straightforward if you have any hidden issues like a lien (again, not for our friends stuck in California). They find the lien at the DMV, they tell you about it, and you go from there in trying to resolve the situation.
Hidden liens often originate from a mechanic, storage facility, or loan shark. You probably won’t be able to resolve them yourself without paying the money the lienholder is looking for, but you can at least not buy the vehicle at all – not the happiest option, but better than the alternative.
First and foremost, know what you are getting into. Pulling a VIN check on every vehicle you consider buying is the easiest way to figure this out. Even if the seller offers one, I would still pay a few bucks and get your own.
You can never be too safe.
It won’t necessarily reveal everything, but chances are that if it reveals one problem area, there are more.
Hidden liens aren’t necessarily going to be revealed with a VIN check (but you should still get one title brand issues), so check with your local DMV and see if your state has a hidden lien checking service. Some do, and if they do, pitch in a few bucks and see what you’ve got. Call your DMV and tell them you want to make sure the vehicle you’re looking at buying doesn’t have any title liens or encumbrances. They will take it from there, and if the answer is yes – and that wasn’t the answer you were expecting – walk away.
What if I Find a Hidden Lien?
It really all depends on the situation. These have to be taken case by case, and every state is different.
The first thing to do is try to resolve the issue with the seller. Getting it settled with them is the best thing to do, and by far the best place to start. Keep in mind the seller might be as clueless as you were to the presence of this hidden lien – go into it with cautious skepticism, but don’t assume they are trying to scam you. In all reality, they might have been scammed themselves.
If you can’t settle it at this level, you should probably talk to the DMV and see if there is any way around it. You might also need to lawyer up, depending on the severity of it all, and how badly you want this specific car. At this point, for anything less than a collector car or special edition, it’s often better to just find another example that checks all your boxes. Trust me, that’s better than ending up with a hidden lien to some random storage facility, because once you buy the car, that lien becomes yours to deal with.
Dirt Legal can help
Depending on the situation, Dirt Legal might be able to help with our titling services. We have worked with thousands of customers on very complicated title-related situations, so go ahead and give us a call and we’ll talk about your situation with you to see if we can help.
John McCoy is a lifelong car and truck enthusiast and has a strong mechanical background off the road. He spent over 13 years in the U.S. Air Force as a crew chief, assigned to the B-1B Lancer, affectionately known as the Bone to those in the community, and the KC-135R Stratotanker. He resides on a small farm in Eastern Kansas where he (sometimes) enjoys fixing ancient farm equipment.