The sale of a car without the certificate of title can pose risks for both the seller and the buyer. The biggest risk for the seller is continuing liability for the vehicle if ownership is not legally transferred. The absence of a title also means that the buyer cannot insure or register the vehicle. These issues can be avoided by taking steps to gain possession of the title before finalizing the sale of the vehicle.
In a vehicle sale, the certificate of title serves as the legal document that is used to transfer ownership from the seller to the buyer. This document, when properly executed, provides protection to both parties with the seller being released from liability for vehicle and the buyer being recorded as the new owner with the state DMV. The release of the vehicle by the seller then allows the buyer to assume ownership, register the car and buy insurance coverage. There are two primary reasons that a seller may not have possession of the certificate of title, with each solution requiring different measures.
A title that has been lost or severely damaged can be replaced by filing for a duplicate of the original with the state DMV. Each state sets the routine for ordering a replacement, but the required documentation usually includes a completed application for a duplicate title, a valid identification for the owner, and applicable fees. An owner that is planning to sell a vehicle but has lost the title should start the application process for a duplicate certificate as quickly as possible, as the wait time for the replacement can take up to a month. For example, California mails out duplicate copies 15 to 30 days after receiving the required paperwork.
When a car is purchased with financing, the lender will hold the certificate of title and be listed as a lien holder. These measures, along with notifying the state DMV of the lien, prevent the sale and transfer of ownership of the car before the balance due on the loan has been paid in full. A person planning on selling a vehicle with a lien holder on the title can satisfy the loan balance by making all scheduled payments or making a lump sum payment. If the lender is holding the title in a digital format, it will notify the DMV to take the lien holder off of the title and mail a paper copy to the owner. If the lender holds a paper title, it will send it to the vehicle owner along with paperwork that releases the lien. This paperwork must be submitted to the DMV to get the lien holder taken off the title.
A seller that is not in a position to pay a lump sum to the lender can make an arrangement where the buyer pays the lender to vacate the lien and then pays the seller the balance of proceeds from the sale. The process of releasing the lien and getting the certificate of title would be the same as if the seller paid the loan balance. In this type of transaction, the buyer assumes the risk of making the final payment on the car without receiving the title. This risk can be mitigated by having an escrow service handle each step of the process. For example, an escrow company can send the payoff to the lender, but retain the proceeds due to the seller. When the clear title is received from the DMV and ownership is released to the buyer, the escrow company would make the final payment to the seller.