When a new or used vehicle is financed, the lender is listed as a lienholder on the certificate of title. This encumbrance prevents the vehicle from being sold or transferred to another party before the loan is paid in full. Satisfying the loan usually is done in one of two ways; completing the schedule of payments or paying the amount due in a single payment. Once the lienholder confirms that the balance owed has been paid in full, the process of releasing the lien can be initiated.
The State of Pennsylvania requires that all financial institutions that provide loans on vehicles participate in the Electronic Lien and Title program, which facilitates paperless communication and record keeping between the Pennsylvania Department of Transportation and lienholders. In this system, lenders maintain digital copies of the vehicle titles. When a loan is paid in full by the borrower, the lienholder transmits a release of the lien to Penn DOT, which prints a paper copy of the certificate of title and mails it to the vehicle owner.
If the seller is not in a position to pay off the loan, having the buyer pay the lienholder for the balance due may provide an alternate solution. If the lender has a location within a reasonable travel distance, the buyer and the seller can meet at that office. There, payment of the loan is documented and a bill of sale presented to the buyer. The sale proceeds that remain after satisfying the loan are paid to the seller at that time. The lender transmits the release of title to Penn DOT, which mails the certificate to the seller. The seller can then sign the title over to the new owner.
A vehicle sale where a certificate of title isn’t available leaves loose ends for both the buyer and the seller. For the buyer, the vehicle has been bought and paid for without having the title that makes ownership official, while the seller remains liable for the vehicle until the title is transferred. For parties not familiar with each other, using an escrow service to manage the transaction can ensure that the deal is closed properly on both sides. This service can coordinate payments, the delivery of title, and a clean transfer of ownership to minimize risks for both the seller and the buyer.
