The Expert Podcast

Many, many times the inquiry we get has to do with a vehicle that's been paid off. A loan's been paid, but there's still a lien holder showing on the vehicle title. This happens 100–200 times a day. We hear the same story where a client has purchased a vehicle many years ago, they had a car loan, they paid off all their payments, and then later they don't have their title, and there's still a lien on the title record. We'll get into how that happens, but this type of story even makes the news in some cases.

This is out of North Carolina, where a person did not have the ability to drive their car because they couldn't get a title because the lien holder did not clear the lien. It's part title for more than a year, kept the car parked for triangle travel and Earth. This isn't out of North Carolina, but the car came from California. Let's take a look at what happened.

It starts out where she moved from North Carolina to California because she moved for a nursing job. The North Carolina DMV rep said that the title was forwarded to California. When she checked with California, they told her that they sent it to North Carolina. So they basically went back and forth.

This happens a lot with Departments of Motor Vehicles. It's not that the employees are trying to mislead you or are incompetent or inept. It's just that government agencies are very overworked, understaffed, and under-budgeted. A lot of times, there are differences in procedures from one agency to another. Once you start going back and forth between different states, you can run into a lot of problems.

In fact, the California DMV says it does not receive or send titling documents to DMVs in other states. It's up to the registered owner to do that. She went back to North Carolina, and they said, "Yeah, you're right, we sent it to California, but it was returned as unclaimed."

So how does this happen? How do titles get messed up for paid-off liens? Here's the mechanics of how a lien release is done. If you have a loan on your vehicle and you pay all your payments, you pay your last payment to the bank, and what they do is they take your vehicle title that they have in their drawer or file cabinet, they stamp it "paid," they sign it, and they mail it to you.

What they don't do is clear the lien from the title record. And you might think, "Well, shouldn't that happen automatically?" Not really, because the lender and the DMV or the titling authority are two different agencies. Your lender is not the person who issues a title. The Department of Motor Vehicles, or whatever the name of the agency is in your state that issues titles, is the one that actually updates title records.

The bank knows that you have a zero balance on your loan—that's fine. But the DMV does not know that you paid off your loan until the bank tells them. The bank normally doesn't tell the DMV; they tell you. They sign the title, stamp it "paid," and sometimes they'll give you a lien release document—a separate form that tells you your loan is paid.

You might think, "That's great, my loan is paid." Not so fast. The DMV, who is holding your title record, does not know this event happened yet. The bank normally doesn't tell them. Here's why: In order to do that, you have to pay a fee, file some forms, and update the records. It might cost $30, $40, or $50 to change the title.

It also takes some labor to fill out the forms and file them with the DMV. Now let me ask you this: Do you like dealing with the DMV? Do you know how long it takes to work with that bureaucracy? Well, imagine you're a bank, and you have to do a thousand of those a day. Instead of allocating extra resources and employees to do all this, they just stamp the title page, sign it, and mail it to you.

As long as you have that title in your hands, you're good. If you need to sell it, you're good. But what if you lose that title? What if it never gets to you? Now you're in limbo because you know the loan is paid, the bank knows the loan is paid, but the DMV does not know the loan is paid.

What we recommend doing is, as soon as you get that lien release or that title, take it right down to your titling authority. Change the title record to reflect that there is no more loan on that vehicle—no more lien on that vehicle. That way, no matter what happens in the future, your title is clear.

If you're in a position where it's too late—you lost the title, you didn't get the paperwork from the bank, and now you're trying to sell your car, or maybe move to another state—and that state doesn't have your updated title record, well, now you have a problem.

Now you have to go back to that lien holder to get a new document showing that they say the loan is clear. The DMV is not going to take your word for it. Even though it might be 10 years old, that car loan might be 10 or 15 years old, the DMV is not allowed by law to remove a lien claim on a vehicle just based on the owner saying there's no more lien.

If that were the case, then any owner who didn't want to pay their car loan could just call the DMV and say, "Hey, my loan is paid off, take it off my title record." So they can't do that. They have to leave it on there until they get a formal written document from the lien holder.

We're dealing with this every day, dozens of times per day. I have a case we're working on right now where a major auto manufacturer lien holder is having difficulty coming up with a lien release. In fact, this case may have to go to court and may require a court order title because there are a lot of errors on that lien record—there's probably even two liens on the vehicle.

If you're watching this and you are in a position where you have a vehicle, maybe you have a loan, maybe you bought it from somebody with a loan, and you need to clear that lien, it's very important that you do it a certain way. Don't call up the bank or the lien holder to ask them to remove it because it won't get done. They might say they'll do it, but then they won't, or they might just say, "We can't do it, go to the website," whatever—they just want to get you out of their hair.

The reason why is because banks don't have staff dedicated to removing liens from title records. They don't have staff for that. So what you have to do is most of the work for them. You fill out the forms, prepare them, and mail them to the bank via certified, registered, or priority mail—something with tracking so that you know they got it.

There's probably not a staff at that bank that can fill out all the forms and find the right ones, first of all. Every state has a different form, so they have to find it. You might have to do some of the legwork to make it easy for you.

If you need more assistance on this, we have some videos that will give you instructions. But the most important thing to keep in mind is that lien releases do not happen automatically when you pay your last payment. The bank doesn't clear it from the title records.

In some states, on newer vehicles, there might be an electronic lien that gets cleared. But even then, a lot of times, we find there are errors. If you've moved to a different state, that throws it out of whack too. If you've got a loan one year, and before you pay it off, you move to a different state, now both states have conflicting records.

You're going to run into problems. It's something that is very common. There are solutions for it. This video is not really the instructional part; our other videos give you the instructions on how to do that. This is to tell you why it happens, how it happens, and the fact that it's not an uncommon thing. They're not singling you out—this happens all the time.