The Expert Podcast

When a vehicle is financed, where is the title? Who's holding the title? This question comes up very frequently from clients in our car title division. What happens when a vehicle is financed is that the owner of the vehicle—the driver, the borrower—is listed as the owner on the physical title. The owner's name is shown as the owner of the vehicle. However, there is a section on the title certificate that references the lien holder.

If you borrowed money, let's say from Chase Bank to buy your vehicle or Ford Motor Credit, the lien holder section will say the name of that lien holder printed on the title. So when the DMV or titling division in your state prints that title, they're going to put that name in the title record and print it on the title certificate. Now, in most states, when that title certificate is printed by the DMV, it's mailed to the lien holder. The bank actually gets that physical paper document—that certificate—and they hold it in their files while the loan is being paid. The name of the owner will still show as the owner.

Technically, if you are the owner of the car, driving the car, you are the vehicle owner. You have insurance on it, you have it registered in your name—it's owned by you. But the lien holder has what's called a security interest or a chattel interest in that vehicle. That chattel interest is their collateral to make sure you pay the mortgage or the car loan. If you don't pay it, they can come get the car. Now they own it. The record of that lien holder on the title also prevents you from doing something else—selling it.

You can't sell the vehicle to another person with a lien on it because they are holding the title certificate with their name on it. Once you have paid the final payment on that loan, they then take that title from their records, sign it, stamp it as paid, and mail it to you. Now you're holding it.

There are a few states that allow the driver, the owner, to hold on to that title certificate. Even so, it still has the name of the lien holder imprinted on the title, so you still can't sell it because it shows that there's a lien against that vehicle ownership. So the title, in most cases, is held by the actual financial institution.

There's a third scenario. Some states, on later model vehicles or newer vehicles, are going to paperless titles. What that means is there is no physical paper document issued and printed by the title division. There's just an electronic record of that title. If you go to sell the vehicle, you can have a paper document printed if you want, but initially, they do not create that paper document. When that happens, nobody's holding the title. The lien is still recorded on the title record, and the owner is still showing as you on the title record, but the paper document is not actually created.

This is an example of how a title looks for a vehicle held under a non-paper title electronic title state. That record is simply held by the DMV. Nobody gets a title. Once the lien is paid off, the financial institution will electronically clear that record from the title records at the DMV. At that point, you, as the owner, can print a paper title if you want. You can continue just to own it with a registration, transfer it to somebody else, or even trade it into a dealership. The dealership can look up that electronic title record and know that you're the owner with no lien.

There's another scenario for the title of a vehicle if it's leased. If you lease a vehicle, the process is different. The owner is going to show the lease company as the owner. You're not listed as the owner. You'll be listed as a registrant. The license plate and registration will be in your name, but the title owner is the name of the leasing company—Taylor Motor Credit or whoever. In that case, the lease company will hold the title. If it's electronic, it won't be issued at all.

Once you pay the end of the lease, the car goes back to the leaseholder, and you will never see the title. If you decide at the end of the lease to exercise your purchase option to buy the vehicle, then the title is transferred from the lease company to you as the owner. It will be like any other title transfer, just like if you bought a car from Facebook. It will have a signed transfer from the lease company to you.

If any type of loan goes into default and is not paid, many times the lien holder—the financial institution or the bank—will put it into collections. After some time, they'll stop trying to collect it and do what's called a charge-off or write-off. A charge-off of an auto loan or any loan is simply a designation from the lender that they no longer expect to get any money from this loan. It’s strictly a financial record and has nothing to do with the title.

When a loan is charged off, the lender must remove it as an asset from their balance sheet. However, that charge-off event does not remove the loan record from the title. It does not take the lien out of the DMV records. If there's a lien on the title document or in the DMV records, it will still be there after a charge-off. If a vehicle is charged off, there may be an easier way to have it removed by requesting a lien release from the lender.

Until that point, the lender or lien holder is still holding the title and has possession of that title certificate. Even if you somehow got your hands on it, it would still show that the lien holder has a beneficial or security interest in that vehicle. This means you can't sell it, and sometimes you can't even renew the registration if you don't have the title.

In summary, the lien and the title are two different things. The lien being charged off or written off does not remove it from the title record. In the meantime, the title certificate—that paper document—will be held by the financial institution until the final payment is made.