Buying a used car carries a variety of risks, especially when the transaction is being done with a private seller. In these situations, most of the attention is focused on the condition of the vehicle. However, knowing everything about the car should also include a check to see if there are liens that have been placed against the title.
Liens are placed on vehicle titles to show that there's a creditor with a claim that must be paid before the car is sold. The unknowing purchase of a car with an existing lien puts the buyer in a position of choosing between two difficult options: chasing down the seller to reverse the transaction, or paying off the balance owed to the creditor to satisfy the lien. Some liens are relatively easy to discover. However, others might not surface until long after the purchase has been completed -- unless you run an independent check for them.
A lender will place a lien on the title of a vehicle it finances as a security interest to ensure the loan is paid in full before the car is sold and ownership is transferred to someone else. If the owner of the vehicle has a paper title, the lender will be listed as a lien holder, so ask the seller if you can take a look at the title. If the seller doesn’t have the title, it’s a good indication that the lender has retained it until the loan has been satisfied.
Mechanic and storage liens can be placed against the title of a vehicle when the owner doesn’t pay for repairs that have been done, or for accrued impound fees. These liens are usually filed directly with the DMV in the state where the car is registered, which means that the title held by the vehicle owner may not show a lien holder. In this situation, a buyer who assumes that the title signed over by the seller is clean will be informed by the DMV of the lien when an attempt is made to transfer ownership of the vehicle. At this point, the title cannot be transferred. The buyer then has two options: ask the seller to reverse the purchase, or pay the balance owed to the lien holder to release the lien.
Liens placed by lenders, mechanics and storage companies must all be recorded with the DMV in the state where the car is registered. To check these records, get the vehicle identification number of the car and have the DMV do a search for liens. This can be done at an office or online, depending on the state’s DMV capabilities. If you are paying a service to do a complete vehicle history report on the car, such as by Carfax or AutoCheck, any liens on the title should show up in their documentation as well.
