How to sell a car with a lien

When you buy a car through a private or financial institution loan or other type of financing, the name of the lender will be recorded on the title certificate as the lien holder. A lien is a legal right granted to a creditor on certain property and can be used as a guarantee for potential obligations, such as repaying a house or car loan. If the obligation is not fulfilled, the creditor can seize the assets that are the subject of the lien.

When the vehicle loan is paid in full, the name of the lien holder will be deleted from the ownership, and the legal owner can sell the vehicle by filling in some documents. However, if the decision is made to sell the car before the lien holder has paid in full, the car owner has multiple options to remove the lien holder from ownership and transfer ownership to a new buyer. Read on to learn more about liens and how to sell your vehicle if it still has a lien.

Key points

  • Many people use loans or other forms of financing to buy cars, which makes the lender a lien holder for the car.
  • Although the lien holder is not the owner of the vehicle (you are), they have a financial interest in the property.
  • If you are unable to fulfill your loan obligations, the lien holder may seize the car that is the subject of the lien.
  • If you have an outstanding loan balance and want to sell your car, you will need to fulfill your debt obligations with the lien holder.
  • There are several ways to repay the lien and sell your car with clear ownership.

Sales through car dealers

The easiest way to sell a vehicle with a lien is to sell it at a car dealer, especially if the car is to be traded in. The distributor works directly with the lien holder listed on the title (usually a credit union or bank) to facilitate the transfer of ownership.

In this process, the dealer arranges to pay the loan balance in full by using the proceeds of the vehicle to be traded or adding the repayment amount to the loan used to purchase the new car.

The biggest disadvantage of selling cars with ownership liens through a dealer is that the amount paid for a trade-in vehicle is usually lower than the amount sold privately. However, the process of selling to private buyers also requires some additional work from the seller. First, the seller should contact the lender to determine the total amount required to repay the loan, including any additional costs, to pay off the debt and remove the lien holder from ownership.

Before visiting a dealer, be sure to check resources about car value, such as Kelley Blue Book.

Perform sales in the lender’s office

This may be the fastest way to sell cars, pay off loans, remove property liens from ownership, and transfer ownership. This option is also the fastest way for sellers to receive proceeds from sales involving liens on title certificates after reaching an agreement.

Either the buyer or the seller can transfer funds to the lender to repay the loan, and can execute the document to transfer ownership to the buyer, usually in a one-time completion. Whether it is a large lender or a small lender, please call ahead to ensure that someone in the local office can facilitate the transaction. And make sure that both you and the buyer are present at the transaction.

Although this may be the easiest option, there are disadvantages to trading in the lender’s office. The most obvious is the convenience factor. It may not be the most convenient location for you and the buyer to attend, which means that if the office is not nearby, you and/or the buyer must travel-especially if the lien holder is an out-of-state lender.

Lien paid by buyer

If it is not feasible to resolve the transaction in the lender’s office, the buyer can directly pay the lender by wire transfer or promissory note. Either of these two methods can satisfy the lien and can also be used to pay the seller the remaining balance.

This option provides an additional guarantee for the buyer. This is because the funds can be sent directly to the lender, which completely avoids the need to send sales proceeds to the seller, who must transfer the funds to the lender to repay the loan.

Depending on the laws of the state where the sale is located, the buyer may be able to send the paperwork and transfer instructions along with the payment to receive the cleared title certificate directly from the lender. If they cannot do so, the lender can send the cleared ownership to the seller. In either case, both parties must sign a certificate of ownership to complete the sale and transfer ownership to the buyer.

One of the problems with this option is that it may take a while for the lender or the holder of the lien to issue the check if there is any income after the loan is paid off. For example, suppose you have a balance of $9,000 in a car. But the buyer agrees to pay $9,500 for some upgrades you make, such as a new stereo system. It may take some time for you to get the money. That’s because you will be at the mercy of the holder of the lien to issue you an income check.

Use escrow account

Similar to holding accounts, escrow accounts are usually used in the real estate industry. But this service can also be used for other transactions, such as car sales. An escrow account involves the use of a third party who holds funds until the transaction is completed. This party is usually neutral and has nothing to do with the seller or the buyer.

Using an escrow account adds an extra layer of security to both parties, because the third party can verify the buyer’s funds, confirm the removal of the lien holder, and facilitate the transfer of ownership to complete the transaction.

The cost of using an escrow account adds to the additional cost of the transaction, usually based on the total amount of vehicle sales. Since the escrow account protects the interests of both buyers and sellers, service fees are usually shared equally between the two parties.

Search and comment online, seek references from friends and family, and even consult dealers and lenders for advice and find custodial services.

Both buyers and sellers should beware of false escrow services, especially when one party insists on using a specific escrow service. Once involved, the fraudster may verify that they have received the funds, assuring the seller that the vehicle can be released. Similarly, a false escrow company may assure the buyer that the lien is clear and the ownership is transferred to receive payment. This is why it is important to conduct research and ensure that you deal with reputable institutions.

What is a lien holder?

The lien holder is the party who has a legal interest in property (such as a vehicle).

What does it mean that a car has a lien?

A car lien is a form of guarantee for the holder of the lien. If the borrower fails to fulfill its financial obligations, it allows the lien holder (usually the lender) to own the relevant property. Without the permission of the lien holder, the person who owns the vehicle may not dispose of the vehicle.

Can the lien holder take your car?

If you stop paying and default on the loan, the lien holder can take possession of your car.

Is the lien holder the owner?

Although the lien holder’s name appears on the title certificate, they are not actually the owner of the vehicle. By buying a car, you become the actual owner, and the lender only has a financial interest in the property.

How to remove a lien holder?

In order to remove the lien holder, you must prove that the lien is satisfied. Therefore, if the lien holder is the bank that financed your purchase, you must show proof that you paid off the car loan.

Bottom line

Liens can be troublesome, but they are a necessary part of buying and selling property (such as vehicles). Contrary to popular belief, you can sell your car even if you have a lien. Although this process may seem cumbersome and you may need to skip some hassles, you can sell through a dealer, in your lender’s office, or have the buyer pay the lender directly. You can also consider using a neutral third party, especially an escrow service, to remove the lien so that the ownership of the car can be transferred to the new owner.


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