The Expert Podcast

Welcome to another episode at CarTitles.com. One of the most common questions that comes to us has to do with vehicle liens. It could be removing a lien from a vehicle title record, for example, an old paid-off car loan or a charged-off car loan, or a loan that shouldn't even be on the car. Another lien question that comes up is a mechanics lien. Can you use a mechanic's lien to get a title? And there are some very important misconceptions that people have that, at the very least, could keep you from getting a title and have you be rejected on your title transfer. At the worst, that could create legal problems.

Most people don't intend to do anything illegal or get in trouble, but a lot of times there are urban legends or online forums that tell you you can do certain things that might end up getting you into trouble. So let's first talk about a vehicle lien and a vehicle title with a lien on the record and figure out what that is. First of all, a vehicle title, as you know, is a legal document. It's a certificate that's issued by a government agency. Most states call it the Department of Motor Vehicles, or DMV, or something like that. And that state agency keeps track of and issues vehicle titles. Now, if you purchase that vehicle and, when you bought it, you've got a car loan from either the dealership, a manufacturer, a bank, or somebody like that, let's say you got a car loan from Chase or from Toyota Motor Credit, that lender is going to put that lien record on your official title history. It's going to go into the government agency record system so that your title will say right on it, "Lien: Toyota Motor Credit." In fact, in most cases, they won't even give you the title because that's being held by the lien holder in most states. So, as long as that lien is on the record, you can't sell it or transfer it; sometimes you can't even get the title because the bank owns it.

Well, what happens when you pay that off, or if it's a charge-off, and now you have to get it removed from the title record? Well, in most cases—let me back up—in some cases, the bank or the lien holder will actually take action to remove that lien from the title record. They'll either send a document, they'll do it electronically, or they'll sign an affidavit that the DMV will use to take it off the title. Sometimes, they give that document to you and then leave it up to you to remove it from the title. Sometimes, all they'll do is take that title certificate, sign it, stamp it "Paid,"  and send it to you, but they'll never clear it off the title record. That's a problem because if you lose that one single piece of paper, now you're out of luck.
So, how do you take it off? Well, in almost every state, the process goes like this: some lenders have a direct electronic connection to the official DMV records where they can electronically type it in, hit enter, and it clears it. Sometimes, they require a piece of paper, and that's more common. That piece of paper is called a lien release document. It's an official form from the DMV that releases that lien from the title record, which clears your title, and now you can sell it, trade it, or do whatever you want.

So how do you get one of those? Well, the first thing you do is see if you already have it from the lien holder. If you don't have it, you need to get it from the lien holder, the bank, a financial institution, or whoever. They have to sign that form. You can't just print it out yourself and submit it. It has to be signed by somebody who's verified by the lender. So what we recommend is don't just call up your bank and say, "Hey, give me a lien release." Don't email them, don't fax them, don't text them, and don't send them a Facebook message because, in most cases, it ain't going to work. The bank is either going to forget about it, they won't do it, or whoever you talk to on the phone, that's not their job, and they'll get lost in the shuffle and fall through the cracks.

So what should you do? What you should do is get that document, that form, and print it out. It's a one-page form. Fill everything in you can. What you can't do is sign it; mail it to the lien holder with a little arrow sticker saying, "Hey, sign here." We've talked about this before, but we'll go through it again. Put a return envelope so that they have a place to send it back to; they don't have to do any work. Put a stamp on that envelope to mail it back to you. That way, somebody gets it; all they literally have to do is sign it, lick the envelope, and boom, it goes back to you. If they have to do any more work than that, it's possible and likely that that employee at that bank, at that financial institution, is just going to say, "Well, maybe I'll do it later, maybe I'll throw it away, or maybe I'll pass the book to somebody else because I don't feel like doing it," because all these people are doing some other job. They're not a lien release department; they're just sitting around waiting to do this.

What about a charge-off? Well, if you do that same thing, many times what happens is that employee pulls it up, they get the VIN number, they type it in, yep, charge-off, sign it, and send it back. Now your lien is released because the charge-off technically means it's off their books, so it should be released. They're not going to take it off the DMV record unless they have an easy way of doing it. So, charge-off takes it off. In fact, one of the things you want to do is send certified mail. Sometimes people ask us, "Well, should I send certified mail?" Don't send certified mail because that's going to probably end up going to the legal department of that lender, which means there may be higher scrutiny. It's going to go to some higher-level executive with higher scrutiny. If you just send regular mail, it'll go to some clerk. They look at it, charge off, you're up, sign it, boom, you're good. That's how you do it, and that's how we do it. We send out a couple hundred of these a week for clients; that's how you do it.
Now, what about a mechanic's lien? Change the subject; change gears. A mechanics lien, for those who don't know—most of you do who watch our channel—is a process where a licensed garage, repair shop, or storage yard can file a lien on a vehicle that's been brought in for repairs, brought in for towing, brought in for storage, and somebody didn't pay the bill. And that mechanics lien allows them to sell the car to pay the bill, right? And it also clears off any prior liens, even if those liens aren't paid. So if there's a lien that's paid, that's still open with Toyota Motor Credit, and if the mechanic does it the right way, it removes that.
However, here's the thing: There's a lot of fraud that goes on with that, and it's not something that the powers that be don't know about. In fact, here, look on the screen; this is from the AAMVA, the American Association of Motor Vehicle Administrators; this is the quasi-government authority. A lot of law enforcement work is done in this organization that works with the DMVs to prevent fraud. And that's exactly what this is: prevention of an abandoned vehicle, mechanics lien fraud. Look, they're not stupid; they know that some auto repair shops will file fake mechanics liens.

Why would they do that? Well, what if your buddy owns a body shop and you say, "Hey, man, I got this 2020 Toyota Camry, I owe $15,000 on. I don't want to pay my loan anymore, so do this: file a fake mechanics lien, sell it back to me, I'll give you a couple hundred bucks, and then I get a free car. I don't have to pay my loan." Well, on paper, that all sounds good, and the auto shop can file the right paperwork; they can do everything and try to get you a clear title. But here's what's going to happen: anytime a mechanics lien shows up at a DMV, they're going to look and see if any of it fits this profile of mechanics lien fraud because they know this happens.
And the banks are on to this too. A lot of times, people will try to send it because one of the steps you have to do for a mechanics lien is send a notice to the bank and prove that you sent them a notice. A lot of these scammers will put a letter to the bank with blank paper in it, so they don't really get a notice, but they can show certified mail, "I sent you a notice; you didn't respond to it." They're not stupid; they know how to deal with this. Plus, the DMV is also going to compare notes. They're going to say, "Wait a minute, this little body shop repair shop is filing these mechanics liens two, three, or four a month, but their sales tax revenue and their payroll only show they're a small mom and pop shop. They shouldn't have this many." And they're going to audit them. And if they find out, and they will, that these are fake, they're going to undo the titles, and people get into trouble.
So what are the best practices that they look for to prevent it? And they tell the DMVs, "Look, when review practices are limited, only a small percentage of applications for mechanics liens are found to be fraudulent. But a closer review reveals that a significant number are fraudulent, and this impacts a lot of people. It impacts the banks, it impacts employees, it impacts dealerships." So, this is why they look for it. And here's how they identify fraud in the mechanics lien process:.
One of the ways, and one of the reasons they do it, is to title brand wash, try to take off a salvage title. They also try to remove a lien, like we talked about—the act of fraudulently removing a lien holder from a title without a valid lien release. This is where people don't want to go through the hassle of getting a lien release from a lender. They do a fake mechanics lien. The other, the vehicle cloning and title brand avoidance, isn't a big deal. Fraud may occur when a lien claimant intentionally circumvents the notification requirement, intentionally leaving out specific vehicle information from the notice. That's like sending blank papers, intentionally not providing notification, or intentionally sending empty or junk-filled envelopes to the title lien holder, right? This is what they do. They send those blank ones out. Intentionally sending notice to an incorrect address.

And then the sale process. Look, when you do a mechanics lien, you're supposed to offer the property for public auction. You're not supposed to just give it to one person or keep it for yourself. So you cannot advertise it for sale or advertise a vehicle in a publication where vehicles are not normally bought or sold, not holding a public sale, but you still claim it, selling the vehicle to themselves, employees, relatives, or their own business, and you don't make a reasonable effort to obtain the highest price, right? This is what they know, and this is what they look for in these lien sales.

So for the DMV, the licensing authority, the recommended best practice is to have a trained law enforcement officer conduct physical vehicle inspections prior to making the mechanics lien title application. So what they're saying is that if they get a mechanic's lien title application, they're going to send out a law enforcement agent to inspect the vehicle. First of all, they want to make sure it's there. A lot of times these mechanics liens, the fake ones, the car's not even at the dealership or the repair shop; somebody's driving it around, right? It's not even there. They're also going to check to make sure that you have a repair order, that you actually have authorized repair verification, and that somebody wanted that car in your shop. And then what they're going to do is they're going to obtain vehicle records, they're going to find the last owner, and they're going to look up the new owner to see if there's any relationship between the two. They're going to see if there's a common element among other vehicles that were transferred through that mechanic shop. Then they're going to audit the notices to owners and lien holders. Anybody with an interest in the vehicle is supposed to be noticed and have the opportunity to redeem the vehicle and get it back. They're going to make sure that that notice is done properly. If they find out it wasn't, they can void the lien sale. They're also going to be very suspicious of lien title services and third-party agents. So if there are companies that are hired to conduct the mechanics lien process, a lot of those companies are sketchy, you know, and they may not do it the right way either, intentionally or unintentionally. And they're going to verify that all of the records were done properly. If you're a repair shop, you want to at least be signing the paperwork. You don't want to leave that to somebody else.

Then they're going to verify the timeline. This is an important part. Every state has required timelines that you have to wait for once you file that mechanics lien. You have to wait maybe 30 days to get the notices out, then 30 more days for the auction, and then 45 days for a VIN verification. They're going to make sure all those timelines are met. And if they see any of the paperwork was done too soon, they're going to void it or if it's taken too long. A lot of times, these repair shops will sit on a vehicle for a year before they file it because they want all the claimants to go away. So they're going to make sure the timelines are met properly. When you do your lien sale, they're going to make sure that a defined sale process is in place. They're going to make sure it was at a certain date, certain time, was advertised. They're going to provide information about the sales process, including who was there, who was present, who signed the document, and also the sales proceeds. That car is supposed to be auctioned off to somebody, and they're going to make sure that the name of the person auctioned off, there's a receipt for money changing hands for those proceeds, so that the recovery of expenses is not a windfall. So they want to make sure that the vehicle didn't become a free vehicle for the owner or for the lien claimant, or they're going to want to make sure that money actually changed hands, but not too much. And here's where the fraud comes in: the types of fraud.

First of all, there's fraud in advertising, right? Listing an incorrect VIN number or VIN number with missing characters that keeps people from actually doing due diligence on the vehicle, changing the description so it doesn't sound appealing, providing a false address with no association with the lien applicant, and submitting a counterfeit sales ad. So this is where a lot of fraudulent mechanics liens run into problems. You say, "Oh, I held this sale and I advertised it in the paper," and you Photoshop an advertisement to show that these were placed when actually they weren't. This is where most of the fraud happens: collusion between the lien claimant and the buyer. So this is where the person who ends up with the vehicle is in cahoots with the repair shop to either get a lien taken off their car or a closed bid so nobody will pay too much for it. Maybe it really was brought in for service, but they don't want to really have somebody else buy the car; they want to make sure they give it to somebody they know. An end-quote-winning bid by circumventing the sales process happens. You also want to make sure that you don't have an unauthorized lien removed. This is where you have a car loan, which could be up to five years, and mechanics liens on late-model cars should receive extra scrutiny from DMV staff. That tells you right there what's going to happen if there's a mechanic lien on a late-model vehicle; it's going to have extra scrutiny from the motor vehicle department. These applications are trying to remove a lien from the title; that's exactly what happens. You have a lien on a vehicle; you want to make it go away, so you do a fake mechanics lien. You're going to have extra scrutiny on a late-model vehicle with a lien on it.
The last thing you're going to look at is your storage fees for intentionally holding the vehicle. There are situations when a lien claimant, the body shop, or a repair shop will intentionally hold a vehicle in their possession to increase storage costs, conceal a stolen vehicle, or conceal a vehicle from a lien holder looking to repossess it. And this exaggerates the claim and defrauds the system again. Whether you agree or not with the system or how it should be, this is what they're going to do. They're going to get these applications for a mechanics lien, and they're going to scrutinize them heavily because they know there's a lot of fraud. When they get the final application for title, they're going to look at things like the mechanics lien title application process, all the details, the dates, the times, and make sure you have enough resources to go through that with a fine-tooth comb. You want to do good training for employees so they know how to review them. You're going to look for receipts for service to provide if you're a repair shop. Then you say, "Hey, I fixed this vehicle; I put in a new transmission." They're going to look for receipts where you bought parts for it or that you have a repair order. They're going to make sure that the repair shop actually did an NMVdis check. They're going to look for lien notice forms. They're going to look for a bill of sale for a chain of ownership. They're going to look for things like the prior title registration, and they're going to verify that everything was done according to what the laws are in the state.

Review laws and rules referencing lien release. If, for some reason, there's any question, they're going to flag it and pull it out of the system. They're going to audit not only that one but every other mechanics lien that that repair shop did or even the customer did. Once they find any kind of red flag or suspicion, they're going to do a stop title, meaning that they're going to put an administrative stop on the application on that VIN number, and it will stop the applicant from using any other title method to get ownership transferred. It's going to alert the DMV staff that there's an issue with your insurance action and any other pending application. So once your VIN number is flagged, it's going to put it in the system, and if you try to do something different, switch it around, or do a shell game, they're not going to let that new title be issued no matter what you do.
And then once that happens, they're going to take that title application if it's suspected fraud and retain it for criminal prosecution. It says right here: criminal prosecution. If you have a file that's flagged, you may not even know about it until they either have a warrant for your arrest or they come inspect the vehicle. They may do a search warrant on your premises because this is like grand larceny. If you have a vehicle that's $10,000 and you're trying to improperly transfer a title, that's like stealing $10,000. So you want to do it the right way. Sure, doing a mechanics lien might seem like a simpler way than having to deal with the actual lien holder or deal with a bonded title or a court-ordered title. A lot of times, people look at it as a shortcut or a loophole. But there's investigators in law enforcement and prosecutors all over this. So unless you are actually a repair shop that actually had a vehicle brought in for service and you did everything right—you didn't wait too long, you didn't sit on the car for two years, you filed the right paperwork, you have a repair order, you did the proper notifications—don't use a mechanics lien as a shortcut because it's going to take longer and it's going to require more risk than just doing a bonded title, a court-ordered title, or one of the other more legitimate ways of getting a title. And a lot of people don't want to do that because some people just feel like if you're getting away with something, it's better than doing it the right way. But they have bulletins; this was written three years ago; every DMV employee has it, and they know to look for it.

And here are some cases of successful enforcement efforts. I remember this case happening about five years ago. They were charged with a 14-count federal indictment; these are federal charges: conspiracy to commit mail fraud and other things. These defendants obtained motor vehicles with active liens; some were purchased from dealerships by straw buyers. They prepared and mailed false and fraudulent lien sale notices to lien holders. They hid the motor vehicles in South Florida to record or to prevent repossession, and they transferred them to themselves. In total, the vehicles are valued at $1.7 million; those are almost 200 vehicles. It was an organized fraud scheme, and the U.S. The Secret Service got involved, and the and the U.S. attorney general is in jail, right? There are many other cases; we'll go through some of these in other videos, but they don't play. Indiana State Police arrested a woman on multiple charges of theft, fraud, forgery, and perjury. A registered auto dealer took deposits for vehicles that they never delivered. They sold vehicles with active liens to customers who were unaware and didn't obtain a proper lien release.

So this is why there's so much scrutiny when it comes to lien releases and mechanics liens, especially when you're getting a vehicle with a lien on it. You've got to make sure that you get a real lien release, not a fake one. And if you have a mechanics lien, make sure it's a real mechanics lien and you're doing everything the right way. It may be frustrating, and it may be time-consuming, but it's the way you have to do it if you want to stay out of trouble. I hope this video helped you understand a little bit more about mechanics liens and lien releases. Again, if you have any questions, comments, or concerns, put them in the comments section below. We'll get back to you. If you have a specific problem, go to our website, CarTitles.com, where we have 24-hour chat support. We have people standing by to help you in real time. Until next time, I'm Tony B., and we'll see you then.