Automotive

Buying a car with a lien: how to do it safely?

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  • Feb 15th, 2011 1:15 am
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[OP]
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Feb 20, 2006
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Buying a car with a lien: how to do it safely?

How can one buy a car with a lien on it - where the seller is using the proceeds from the sale to clear the lien? It takes 5-10 days apparently to clear the lien, so how get confirmation that the associated loan has actually been paid off? Go with the seller to the bank? Must be an easier way...
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Sep 2, 2006
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Go to seller to bank, and probably have to draft and sign a sales agreement that stipulates this clause upon signing. Cover your ass before you go through this ordeal.
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Apr 16, 2007
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Sanchez wrote:
Feb 13th, 2011 9:13 pm
How can one buy a car with a lien on it - where the seller is using the proceeds from the sale to clear the lien? It takes 5-10 days apparently to clear the lien, so how get confirmation that the associated loan has actually been paid off? Go with the seller to the bank? Must be an easier way...


I would highly suggest you schedule a time with the seller to meet at the financial institute that holds the lien against the vehicle to make sure the proceeds of your purchase goes towards the payout.
If you two can't seem to make the appointments in the near future and there happens to be a time lapse (like days/weeks or so) then the financial institute will charge a per-diem. Make sure you have an agreement that he pays for the per diem if such should occur.

Also, once the lien is paid off the financial institute usually issues out a Letter of Release of Interest to the original owner. Get a copy and keep it for your records.

I would not perform any safety procedures until you actually have the letter of release in your hand. You can go ahead and do a pre-safety with the garage you're dealing with so they know whats involved and know what parts are needed.

If you don't go with the seller to his bank to pay off the lien then be aware that the seller may take you money and do other things with it (like pay off other debts, purchase things etc) and you will be on the hook for quite sometime. The worst case scenario is you're driving around with a outstanding lien on the car and all of a sudden a licensed bailiff from the recovery board comes to repossess the car
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Jun 7, 2001
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With so many used vehicles for sale, why even consider one with a lien?

Dave
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Jun 23, 2005
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DavidY wrote:
Feb 13th, 2011 11:56 pm
With so many used vehicles for sale, why even consider one with a lien?

Dave

Depends on what the OP is looking for. Yes there are many used cars out there, but depending on what you're looking for, selection may be limited. When I was looking for my CTS-V back in '05 there was only 1 in Ontario. When I was looking for my Explorer there were only 4 Limiteds.

To the OP, go to the bank that holds the lien with the seller. That's the safest way IMO. We did that with one of our cars.
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Oct 12, 2007
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mikeymike1 wrote:
Feb 13th, 2011 10:30 pm
I would highly suggest you schedule a time with the seller to meet at the financial institute that holds the lien against the vehicle to make sure the proceeds of your purchase goes towards the payout.
If you two can't seem to make the appointments in the near future and there happens to be a time lapse (like days/weeks or so) then the financial institute will charge a per-diem. Make sure you have an agreement that he pays for the per diem if such should occur.

Also, once the lien is paid off the financial institute usually issues out a Letter of Release of Interest to the original owner. Get a copy and keep it for your records.

I would not perform any safety procedures until you actually have the letter of release in your hand. You can go ahead and do a pre-safety with the garage you're dealing with so they know whats involved and know what parts are needed.

If you don't go with the seller to his bank to pay off the lien then be aware that the seller may take you money and do other things with it (like pay off other debts, purchase things etc) and you will be on the hook for quite sometime. The worst case scenario is you're driving around with a outstanding lien on the car and all of a sudden a licensed bailiff from the recovery board comes to repossess the car

Good advice. There is no upside to owning a vehicle where the previous owner's lien is still in force. Even without a repo, there are other pains in dealing with this - for example, in the event of an accident where the vehicle is written off, the insurance company will issue a cheque to the lien-holder and the balance to the new owner.
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Jan 22, 2004
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Toronto
>> Buying a car with a lien: how to do it safely?

there is no way to do it safely.

Even if you go to the back with the seller, there is no guarantee the seller will pay off the loan once you handed over the money.

If the seller does not have the money to pay off the car loan this is a sign of trouble, I would just pass and move on.
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DragonZealot wrote:
Feb 14th, 2011 9:17 am
>> Buying a car with a lien: how to do it safely?

there is no way to do it safely.

Even if you go to the back with the seller, there is no guarantee the seller will pay off the loan once you handed over the money.

If the seller does not have the money to pay off the car loan this is a sign of trouble, I would just pass and move on.

Well said, this is the one 'big' scare of doing this. Unless you write it up in a contract at the time of sale to secure your ass - not sure if this will work though.
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mmagda wrote:
Feb 14th, 2011 10:04 am
Well said, this is the one 'big' scare of doing this. Unless you write it up in a contract at the time of sale to secure your ass - not sure if this will work though.

Even if this is in the contract, it may work but it is still not "safe".

The problem is you have to hand the seller the money first and at that point you are at his mercy to pay off the loan. Not safe, not safe. Seller can default the contract and you can not do anything. You can only go to court.
Member
Apr 1, 2010
265 posts
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when i bought my car it was being financed through state farm, i bought the car for 15,000 the amount owed was 5,400 or something like that. Wrote a check of the 5400 to state farm, and the balance on another check to the seller which state farm held until everything cleared. once it was cleared the state-farm rep called us in got the owner to sign over the title, and gave the check.

was quite a smooth transaction, i dont know if there was any safer way to do it??? but worked out for me in the end.
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Feb 25, 2010
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It's been a long time since I bought a car with a lien but here's what I did (budget at least one entire day to do the whole thing).

First get a bill of sale with the conditions (certified, lien discharged, mechanical inspection, etc)

Next get the safety and Comprehensive Inspection Report (CIR) done (master mechanic used to charge about $125 incl certification). If all goes well, you are buying the vehicle.

Next go to the bank where the loan is. You can give them a cheque for the lien amount. They will provide you with a letter saying the lien is discharged.

Next go to MTO to transfer the vehicle. They will say a lien is on the car but you've already got the clearance letter.

Finally, drive the seller home in your new car.
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Oct 4, 2005
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Sanchez wrote:
Feb 13th, 2011 9:13 pm
How can one buy a car with a lien on it - where the seller is using the proceeds from the sale to clear the lien? It takes 5-10 days apparently to clear the lien, so how get confirmation that the associated loan has actually been paid off? Go with the seller to the bank? Must be an easier way...

I've been in this situation before and here's what I did.

1. Call place that holds the lien to confirm that the lien exists and how much.
2. Get a bank draft and make it payable to both seller's name *and* institution name. This prevents the seller from running with your money.
3. Once the funds have cleared get the institution to write you a letter (be sure that the VIN # of the vehicle is stated) saying that they no longer hold a lien against the car.

Worked for me and having the bank draft in both names gave me some peace of mind.

Hope this helps.
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Apr 22, 2009
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London ON
i sold my last car with a lien on it
the car was worth about the same as the lien $4800 or something like that

just made an appointment with the buyer to meet at bmo
told the employee @bmo i had money to pay off the lien

the buyer handed the employee the bank draft with the amount owed
employee deposited it into my account then put it against the loan

signed the title part of the slips over to buyer and they went to register it the same day
as they knew there was no more lien


i suggest you don't just give the seller a draft and say 'hey whenever you have time you can deposit this and clear the loan?'
because they most likely wont
and then payments stop coming to the bank
and they repo the car you 'bought' from the seller
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