The automotive industry has changed the way that cars are bought and sold, whether it's through dealerships or person-to-person transactions on used cars that aren't needed anymore. When it comes to selling a car with a lien, that's when the already-complicated process of selling cars reaches another level of complexity.
What is a lien on a car?
Once a car has been entered into the financing process, a lien has automatically been created. This binds the financer to ownership of the car and the lender is considered to be the car's owner until the purchaser pays off all loans in full. If the purchaser of the car is unable to complete the payment process for any reason, the lien simply means that the lender is protected and has the right to repossess the car. The lienholder is given legal rights to own the car until all loans are fulfilled.
A lien identifies as a monetary legal claim on a car that can be relieved through loans but is not exactly the same as a loan. Loans and liens go hand-in-hand, but the two do not stand as equivalent to one another. A lien release is issued once the debt of the loan has been completely repaid.
How do I sell my car with a lien?
When taking the first step towards selling a car with a lien, contact your lienholder so that you're able to obtain the exact amount that you're required to pay off. This will help determine what price point to sell your car at. When thinking about a private sale between two or more parties, the lien will present how you should complete paying off your loans and how the title will transfer over to the new owner. Dealerships may offer to pay off loans if the seller opts for a trade-in.
Liens hold no bars against selling cars, and it's possible to sell cars with liens. It's recommended to plan to pay off your loan before selling a car with a lien, though if you are incapable of such, some lienholders may allow the buyer to cover leftover loan fees as part of the buying process. Dealership offers sound enticing, but they may present a lower price point that is less competitive against private buyers' offers, even if they do cover the lien through the payout.
What are the legal implications of selling a car with a lien?
According to Dirt Legal, selling a car with a lien does have one legal hitch. When selling a car with a lien, it must be shared with the buyer that there is a lien in place. It's illegal to not disclose any information about a lien still being active, which has the potential consequence of buyers taking legal action against the seller. It isn't illegal to sell a car with a lien once there has been transparency around it, but the ownership of the title complicates things a bit more.
When going to sell a car with a lien, many states prohibit sellers without a lien release or ownership of the title from happening. Without a lien release, the seller does not have the title of the car. This, legally, could be viewed as selling a stolen car, considering they are not the legal owner. If a seller does not openly share the car lien during the sale, it could be possible that law enforcement could charge them for fraud.
These are the only real legal ramifications of selling a car with a lien if done improperly. Otherwise, there's no real legal risk left hanging overhead.