Tips on Buying Cars: Used car from private seller with a lien, leinholder, follow ups

Question
QUESTION: I am interested in purchasing a car from a private seller.  The negotiated price is the amount left on his loan.  He needs my money to pay off his loan.  I will be borrowing some of the money myself.  How can we conduct this transaction so he is comfortable, I am comfortable and nobody gets scammed?  I am concerned that once his lien is payed off, I will not see him or the car again.  Should I take possession of the car at the time we close the loans?  Am I making sense?  What will happen when I take out a loan and they pay off his loan and how/when do I get possession of my new used car?

ANSWER: Dan,

Thanks for your question.  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.  

This may or may not work.  You have to protect yourself here and that is the only way to make sure it gets done to protect yourself.

Hope this makes sense and it helps.

Thanks - JB

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

QUESTION: Thanks JB, your answer makes sense.  2 quick follow ups.
1. Should he have his title?  Is this the law in some states?  My bank thinks he should.
2.  The seller is apprehensive about letting me have the car until the funds clear.  I want the car as soon as I put up the money, with the title mailed directly to my bank?  Is there a clause we could include in the sales agreement?

Answer
Dan,

I am not sure what state you are in.  If you are in a title holding state, then yes he should have the title, if you are not, then his lienholder will have the title.  

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