Why You Need a Lien Relase to Sell a Car
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What is an Auto Lien
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An auto lien is a legal document that verifies the lien holder's claim on the vehicle. A lien is required when you finance your car purchase because loan documents don't guarantee the lender any rights to the vehicle. Rather, they only the borrower to repay the money. The lien document secures the car as collateral for the loan.
Why a Lein Release Is Important
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When you have paid for the car in full, the bank releases the lien by signing a lien release. A lien release is a simple document that identifies the lien holder, the borrower, the vehicle, and the exact loan amount. It also contains a statement that the lien holder releases all claim to the car. The lien release is signed by both the lien holder and borrower, and it is then notarized.
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What Happens When a Lien is Not Released
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Laws vary from state to state. Generally, if a car is purchased with an outstanding lien, the lien holder's rights supersede the buyer's rights. This means that the lien holder may legally repossess the car without compensating the buyer. The buyer's only recourse is to seek compensation from the seller and legal action against the seller. Savvy car buyers will be aware that no legitimate reasons exist for a seller not offering a lien release for a car with an outstanding lien on record.
If There Is No Lien on the Car
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When a vehicle is owned free and clear, there is no need for a lien release. But you should expect potential buyer's to be skeptical. A car buyer will want to examine the pink slip for indication of a lien holder. To be better assured, the buyer can use a tracing service to get a complete history of the car title. The car buyer usually pays for this, but the buyer may negotiate for you to pay for the title search. To protect your money, do not pay for the car history up front. Instead, take the cost off the sale price of the car.
Selling Your Car With an Auto Lien
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You can sell your car, even if it has a lien. First, you must arrange for the lender to receive their money and release the lien. This is a routine process for auto lenders. A lending bank will usually recommend the vehicle buyer meet you at the bank. The buyer pays the bank directly. If you owe more than the sale amount, you'll pay the bank the difference. If the buyer is paying more than you owe, you'll receive the difference. Once you and the bank representative sign the lien release and it is notarized, the vehicle title is clear, and it may be transferred to the buyer.
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Resources
- Photo Credit Image: http://commons.wikimedia.org/wiki/Image:VVC_700S_the_last_Rover_P6_off_the_production_line.JPG; California DMV
