When you own a titled property outright, people say it has a free and clear title. That is, no one else can claim rights to the property beside you and any other owners listed on the title.
On the other hand, a title that’s not free and clear has a lien.
- The property is collateral for the repayment of a loan or mortgage.
- The owner owes back taxes on the property.
- A service provider holds a lien to guarantee payment for repairs or improvements.
- A lien to collect unpaid child support (usually on real estate).
There are other liens on property titles, but we’re going to discuss the kinds that apply to a car title.
- Car financing loan. When you take out a loan to buy a car, a financial institution such as Chrysler Capital or Bank of America takes out a lien on the title.
- Car title loan. Some lending firms place a lien on a car title for a personal loan.
- Mechanic’s lien. Some states allow mechanics to guarantee payment for repairs with a lien.
A lot of people refer to a free and clear title as a “clean” title.
But a clean title is one that isn’t branded.
In other words, the car wasn’t totaled, flooded, salvaged, junked, or other things that lower the car’s value.
An insurance company might declare a car a total loss in an accident claim. It doesn’t mean that the car is beyond repair. But sometimes it costs more to repair the car than the car is worth.
The title gets branded “salvage.” You can’t drive a car with a salvage title on a public road and you can’t get insurance for it.
If the car gets proper repairs and can pass a safety inspection, it can get a title branded “rebuilt from salvage.”
If a car sits in deep water that covers the engine compartment it gets a flood title.
A fire in the engine compartment can render a car irreparable. It gets a branded title.
You can’t have a car with a flood or irreparable title repaired. You can only sell it for parts.
Lemon or Buyback Title
Many states have “lemon laws” to protect buyers from used cars with known defects. In some states, the lemon laws apply to private sales as well as dealer sales.
The seller has to have known about the defect when selling the car for the lemon laws to apply.
If a defect can’t be corrected after several repair attempts, the car is declared a lemon, and the title is branded such.
State laws determine how many repair attempts it takes to declare it a lemon.
Sometimes an insurance company declares a total loss, but the car can still be repaired. When a totaled car gets repaired and passes a safety inspection, it can get a “Rebuilt from Salvage” title.
Although the car is roadworthy, a rebuilt title decreases its value.
Beware Of Fake Free and Clear Titles
Fraudsters create fake lien releases and even fake titles. Some will try to pass off a free and clear title for a different car.
The car’s unique code is the key to discovering this kind of title fraud.
Every automobile has a “fingerprint” known as the Vehicle Identification Number or VIN. It has 17 characters, made up of both numbers and letters.
The vehicle identification number (VIN) appears on a metal plate on the driver’s side dashboard. You can read it from outside the car looking through the windshield.
The VIN appears in other places as well. For example, most cars have a decal with the VIN on the driver’s side door jamb.
The Vin can help you spot title fraud.
- Letters or numbers on the Vin plate appear altered or scratched to make them unreadable.
- The VIN on the title doesn’t match the VIN on the car.
- The description on the title or other documents doesn’t match the car.
- The VIN is missing from the lien release papers or it doesn’t match.
If you know how to decode a VIN, you might spot a fraud.
The VIN encodes a lot of the car’s info:
- The country where it was built.
- Vehicle brand, engine size, and type.
- Year model.
- Manufacturing plant.
The 9th character in the VIN is the check code. It’s there to detect a fake VIN. Verifying with the check code is very complex. After all, it’s meant to be read by computers rather than humans.
You can use an online VIN decoder to look up the car and make sure the specs match.
A Vehicle History Report Can Verify a Free and Clear Title
Most states’ Department of Motor Vehicles (DMV) have a title check tool you can use on their website. You can enter the Vehicle Identification Number (VIN) and it’ll pull up the title records. It shows any present and past liens and whether they were released.
If your state doesn’t have an online tool, you can visit the DMV in person. If your DMV lets you make an appointment, make one.
A vehicle history report such as AutoCheck can reveal the title status. It’s a good way to find out if a car has a free and clear title.
AutoCheck gathers info from several sources to show title issues:
- Salvage and junk titles.
- Odometer rollback.
Get Lien Release Paperwork
When a title has a lien from a car loan, the lender may hold the title until the loan is paid off. Once paid off, the lender sends the title to the car owner.
In some states, an officer of the bank or financial institution checks the ‘lien satisfied” box and rubber stamps “paid in full’ or something similar. He or she then signs the title.
The signature and rubber stamp are too easy to fake. If the title shows that the car ever had a lien, insist that the seller provide lien release documents as well.
How To Get a Lien Release
Oops! If you found this blog post because you already bought a used car and found out the title has a lien...
Hopefully, you didn’t buy from a con artist who’s skipped town already. Otherwise, chances are it’s pretty easy to resolve.
It could be that the lien was paid off, but the DMV records didn’t get properly updated. When that happens, there are a few steps you can take to resolve it.
Contact the Seller
The seller might have planned to use the money you paid to satisfy the lien and failed to tell you. Ask the seller to take care of it and send you the release documents.
Maybe the seller simply forgot to give you the documents. Make contact and ask for them.
Contact the Lienholder
What if you can’t contact the seller? If the lien is paid off, you should contact the lienholder and ask them to send you a document stating they’ve released the lien.
- A letter confirming the loan is paid off.
- Lien release form for the state.
If another institution bought out your lienholder without government assistance, you’ll need to contact the new owner.
If a new owner bought the lienholder with government assistance, you should contact the FDIC.
You can also contact the FDIC if the lienholder is a failed bank that didn’t get bought out.
To have a free and clear title, you have to make sure that it doesn’t have a lien. That is, if someone else can claim rights to the car, you will need to get a lien release.
When buying a used car, beware of title fraud. Some scammers will try to sell you a car with a fake title.
The Vehicle Identification Number (VIN) can reveal title fraud. You can easily find out if a car’s title is real and whether the car has a lien with a vehicle history report. AutoCheck offers the best value in researching a car’s history.
Even when a lien is paid off, the state records might not reflect it. You can resolve this by taking lien release documents to the DMV.
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