Tips on Buying Cars: Buying a car w/ a lien, leinholder, lien holder

Question
QUESTION: Hi Jeremy, I'm interested in buying a car from a private owner, but the vehicle currently has an e-title w/ a lien on it. Seller has stated that the best way to go about the sale would be to provide him with a cashier's check that he would then mail to the finance company (Honda Financial); they in turn would send him the title w/in a few days, and he'll then sign it over to me. I'm not at all comfortable w/ doing this since I have no guarantee that my payment would get to the finance company, and even if it did, all that would mean is that I've paid off the seller's loan. I was hoping you could tell me if financial companies such as AHFC, have a local branch where final loan payments can be made & title releases granted upon payment. If a car was bought at a dealership,can't you just go back to that dealership to do the payoff? Second, would a bill of sale between myself and the seller be legally binding considering the car is actually owned by the lien holder (AHFC)? Thanks in advance.

ANSWER: Nic,

Thanks for the question.  Here is what I do.  I would not be comfortable with that at all.  I answered this question for another user, and I am attaching the answer.  Hope this helps.

Thanks - JB

This is always a very complicated situation.  If I were you, this is what I would do.  I would draw up a contract that states all of the details of the transaction.  Both of you would need to sign the paperwork to make it legal.  I would NOT pay for the vehicle until I take possession of the vehicle.  If the seller agrees to that then you would be okay, but the seller might have some apprehension towards this.  I would offer this to the seller to make them comfortable with the situation.  I would go to your bank with the seller, and have them cut a check directly to the leinholder on the vehicle that they have loan on.  You have to do this by law and to protect yourself.  You CAN NOT give them the money on the car made out to them if there is a lien on the vehicle.  Have your bank make the check payable to the leinholder for their payoff.  Also make sure that your bank requests that the title be sent to your bank, not the seller.  The title needs to be sent to your bank to secure you.

Then here is my follow up answer to it as well.

As far as your other question.  I would be apprehensive if I were selling you the vehicle to, but it is the only way that I would do it if I were you.  

Yes you can put a clause in the sales agreement, but the only way you could enforce it if something were to go wrong, is to take them to court, which could become very costly for you, if you could even find them to go to court.  I would be very careful.  I understand the sellers apprehensiveness, but I would only do it under that circumstance.

Hope this helps.

Thanks - JB

---------- FOLLOW-UP ----------

QUESTION: Thanks for the quick response, just wanted to clarify what you mean about having the title sent to the bank, and the kind of check the bank would send. I have the full amount in cash, so I wasn't planning on  financing the car. Considered getting a loan from the bank, so that they would deal w/ the transaction, but my bank does not do car loans, and other banks I looked at wanted a minimum # of mths financed which leaves me paying interest on a car I can afford. The other problem is that unless it's a cashier's check, it will take a couple of days to clear, and the seller is moving in about a week. He's fine w/ leaving the car in my possession upon payment, but even that's useless since it would still legally be his car w/o title. This whole process is ridiculous as it leaves the buyer w/o any measure of security - don't know how anyone agrees to this. Think I'll just take a pass and renew my search.

Answer
Nic,

In that situation, since you are not financing the loan, just supplement you for the bank.  It is a headache when it comes to buying a car from an individual that has a loan on the car.  Most people are honest, but there are a lot of people that aren't, and that is why I would use severe caution in this situation.  There are legal ramifications if things did not go "right".  You could take that person to court, and further more it is a federal offense if someone sells a car with a lien on it, and does not fulfill the lein.  That person would be in severe legal trouble if they did not fulfill the obligations, but it would we a major time consuming issue for you, and courts would be involved and the police would be involved, and it would just be a huge headache for you.  Like I said, it may be fine, and all may work out just great, but I would not do it, without those conditions.  You could do this:  You could send the cashiers check to his bank yourself, make out the cashiers check and all of that, with instructions to send the title to your address.  Its a crapshoot as to whether the bank would send it to you or not.  If you are paying the seller more than what he owes on the car, you could get two cashiers checks, one for the bank and one for the over amount that would be made out to them.  

I would not say not to do it, just make sure that you have your I's dotted, and your T's crossed.  90% of the time it works out just fine, just make sure you aren't in the 10% that doesn't.

Hope this helps.

Thanks - JB