A lien is, at its simplest, an insurance policy that a lender uses to protect itself if a borrower defaults on a financed vehicle. If you recently bought a car with a lien on the title, take these steps to put yourself in a less precarious financial situation.
What is a car lien?
This “insurance policy,” put in place by the lender gives it the legal ability to keep the vehicle’s title until you pay the balance of the loan off. Many drivers realize the reality of a car lien once they try to sell the vehicle and see that they are not able to. Along with your ability to sell the vehicle, a lien also affects the cost of your auto insurance.
How to get a lien removed from a car title
Buying a used car shouldn’t come with any strings attached — especially not a lien. Although it may take some legwork, and quite possibly several weeks, you can probably get your issue resolved at little or no cost.
- Contact the seller. See if the seller can provide you with any proof that the car loan was paid in full, such as canceled checks or a paid-in-full letter. This is also a great time to reach out to the lienholder and ask for the appropriate paperwork.
- Request a lien removal. If the lienholder is a bank that failed (or is a subsidiary of one), you can contact the Federal Deposit Insurance Corp. directly to request a release letter. Once you have the documentation you need, you can file it with the DMV and get the car registered.
How to tell if there is a lien in the first place
When buying a used car, it’s always best to have the seller provide you with a letter from the lender stating that the lien has been released, or if the seller is providing you with the title, check with the DMV first to ensure there is no lien.
In many cases when you receive a title for the used car, the chances are that the lien has been paid in full — it just hasn’t been released properly. This can happen because of a bank error, or it can get lost in the shuffle of a merger or a bank failure. Look out for this when working with the seller.
The bottom line
Simply put, it’s hard to enjoy your new ride if there is a lien on it. Make sure the previous owner pays off any money owed so that the car is fully yours — not the bank’s.