How To Remove Lien From Title

How To Remove Lien From Title – Cutting Ties With The Bank

In such difficult and trying times, being able to live debt-free is, in of itself, a luxury that many can’t so easily afford. But when you do crawl yourself out of that hole, and realize that you don’t owe a single penny to someone else, it’s a blessed feeling. One such item in your life that you’d possibly take out a loan on would be your car. So then, what can you do in learning how to remove lien from title?

This will be necessary for when you’ve finally paid off all those dues on your car, and could finally own and drive it, 100% under your possession. By this stage, it’s no longer collateral, but something you’ll be able to enjoy owning. However, vehicle ownership is a maze filled with documents and paperwork, which includes that title. Once you’ve paid off your car loans, you’ll have to update the title.

Why, you might ask? Well, it’s because the title is a certificate of ownership for a vehicle. With some financing or loan attached to it, the bank partly owns a piece of your car. Once they’re completely out of the picture after having settled said loan, the title has to reflect that you, and only you, are the sole owner of a vehicle. But before you manage that, you’ll have to learn how to remove lien from title…

What Is A Title, And Why Need To Remove A Lien From It?

To learn how to remove lien from title, we’ll first have to understand more about what a title does. As we hinted at earlier, a title is proof of ownership over a vehicle. This hard-copy certificate contains a legal validation that you, with your name and signature in the title, are the owner of a particular car. In some cases, joint-ownership over a vehicle could also be established, with more names in the title.

As you purchase a car, you’ll receive the title from its previous owners. When you sell a car, you have to pass off that title onto its new owners, and so on. Within that title, you’ll find additional data and information such as:

  • Name and signature of the owner (or ‘owners’, if more than one person owns the vehicle)
  • 17-digit VIN (vehicle identification number)
  • Odometer reading recorded at the time of the sale or transfer of ownership
  • Weight class (very useful and necessary to know if you’re buying something heavy, such as a big SUV, truck, 4×4, or commercial vehicle)
  • Title assignment that contains the name and signature of both buyer and seller, addresses, and date of the sale (applicable when buying or selling cars)
  • Lienholder information (it could be a bank, dealership, or the automaker’s own financing arm, who’s underwriting the loan)

What Does A Lien Have To Do With Your Car’s Title?

Car ownership is an emotional moment for many people, and would often become a core part of their lives. So, why then is the bank getting involved in the title, needing you to understand how to remove lien from title? Quite simply, when you decide to purchase a car with a financing deal or loan, there’s going to be someone out there who’ll put up the cash, with the promise that you’ll pay them back.

Those who typically finance the purchasing of a vehicle are banks or dealerships. Besides them, there is a growing number of automakers who have their own in-house financing arms. They can provide a suitable alternative to buyers, should the bank or dealership not offer a financing package. With that in mind, these ‘lienholders’ become part-owners of your car, until you settle the entire loan.

How To Remove Lien From Title

Hence, why their name appears on the title, seeing that they have a stake in your car’s ownership. In addition, having their name on the title is also considered as some form of insurance. Should you fail to settle the loans, a lienholder has the right to call up a creditor, and use your title against you. They can then take measures to repossess your vehicle until you pay up, at any point in time.

Repossession can occur, even if your missed or late payment is only a small sum. Although, this is one risk of getting a loan on your car, as their typically low-interest rates can be quite helpful. In some states, any car titles that have a lienholder named as a part-owner, are considered a ‘lien title’. Furthermore, there are also instances where there are several lienholders in a single title.

What Are The Different Type Of Liens In Your Title?

Ordinarily, most people will encounter ‘voluntary’ liens. These are agreed upon when you purchase a vehicle by accepting a loan to finance a part of the car. However, there are also instances where folks have been locked into deals with ‘involuntary’ liens. The latter is signed onto your car title not by choice, but usually by a court order. This is how you can end up with more than one lienholder.

Examples of involuntary liens include:

  • Mechanic’s Lien – Mechanics can offer you the option of not paying the full sum of a repair, as long as you agree to pay the remainder once you receive your salary. This can be applicable for pricey repairs that cost thousands. If you fail to pay, the mechanics could get a court order on your vehicle’s title. It entitles them to repossess your vehicle should you fail to pay for the remainder of the repairs.
  • Judgment Lien – These apply to any third-party or creditor and is another court-ordered lien. This is a measure taken by them to forcefully take you to court, over having failed to settle any form of a loan. Your car has value, and it can be repossessed to compensate for the unsettled sum. Judgment liens can be issued under circumstances such as failing to pay a speeding fine or parking ticket, and so on.
  • Tax Lien – This is often issued by the IRS (Internal Revenue Service) and only applies to those who’ve failed to pay their taxes. They have the right to impose a court order on any property that you own. It includes your car, as it’s worth something that could cover the unpaid taxes you owe. Repossession is then followed by liquidation (or auction) of your assets.

How To Remove Lien From Title?

Once you’ve identified who the lienholders are, you can then begin to make contact with them. Ask as to how much you owe them, and the process or settlement for paying them. Then, we begin with the first step as to how to remove lien from title…

1. Identify Your Lienholder(s) In The Title

Once again, take a look at your title, and understand to whom do you owe money, and how much is owed. Your lienholder (or ‘lender’, in conventional terms) could be the bank, dealership, or the manufacturer of the vehicle. On top of that, it may be the local mechanic who you forgot to pay, the state government whose parking tickets you’ve not settled, or a creditor going after you.

How To Remove Lien From Title

In some states, if you bought your car on finance or backed by a loan, you don’t even have access to your car’s title. The lienholder will be the one to keep hold of it until you’re able to pay up the owed sum in full. Once that’s done, they can hand over the physical title back to you. To find out who you do you owe money to, there are a few options:

  • Double-check the physical copy of the title, if you have it. This method isn’t entirely ideal, as your physical, hard-copy title might not be updated to reflect any new liens.
  • Check with the local state DMV, which sometimes offers online services to let you find lienholders and liens simply using a VIN.
  • Use VIN checking tools and download a vehicle history report (which is also made available by state DMVs as a service) to learn more about your liens.

Know that some VIN checking or vehicle database services (including the DMV) may incur a small fee to process the information. But once you’ve figured out who you owe money to, contact them. Have a frank discussion about how to settle any dues or debt. If you’re unable to pay, you could always make arrangements with a counselor or debt management company to help you out.

2. Settling Any Unpaid Amount To Your Lienholder(s)

Whether it’s just your bank, or some creditor putting a lien on your title, clearing them will inevitably ask that you pay any unsettled amount in full. Let’s say you bought a car with a loan from the bank. In this instance, you’ll have to pay the complete amount of the loan to said bank, until there’s $0 of balance for the loan left. Only then, can you begin removing the lienholder’s name from your title.

How To Remove Lien From Title

But what if your (involuntary) lien is attached to your title with a court order? In this scenario, you’ll have to go to court. It’s not necessary to have a lawyer on hand. All you need to do is settle any due payments to the lienholder. Finally, head over to the court, with proof of payment that you’ve since settled all owed sums. Once notified, the court will allow you to remove the lien from your title.

3. Ask To Remove Your Lienholder(s) From The Title

Having paid the amount, you can now speak with your lienholder to release their lien from your title. Following the final payment, it might take them up to 3 business days or more to get the paperwork ready. The lienholder can then sign off on their ownership of your car, as you’re now the legal owner. There needs to also be some written notice provided by your lienholder to acknowledge this.

It’s typically a lien release letter, as recognition from the lender that you’ve paid in full any owed sum attached to your car. Thus, certifying that they no longer have any claims of ownership over your car. This lien release letter can vary from state to state. In addition, while they can sometimes be issued to you automatically once you’ve paid your dues, you may instead have to prompt them manually.

3.5. (If Applicable) You Can’t Get A Lien Release Letter?

To add another layer of complication in how to remove lien from title, it might be difficult for you to even get a lien release letter in the first place. This might be because your lienholder is no longer in business, or has been merged or acquired by another business. To satisfy the DMV in the following step, you’ll need the following (note, the requirements may vary from state to state):

  • If the lienholder is a dealership, you’ll need to contact the DMV to verify if the dealership that holds your liens is closed. The state DMV will then issue an ‘out of business‘ letter to confirm this to you. If the dealer was taken over by someone else, you’ll need to contact them. In doing so, you’ll have to get a new lien release letter with their name, with links to the original lienholder.
  • If the lienholder is not a dealership (bank, private lender, etc.), the steps are mostly similar. This time, you’ll need to contact your state’s business licensing office (not the DMV) and get a letter to confirm that this business has shut down. Once again, and if said lienholder was merged or acquired with a different business, you’ll need to get a new lien release from them, linking back to the original.

You’ll of course have to supply evidence that you’ve made payments, and have settled the owed sum. This can include receipts or invoices concerning the lien interest payment. Not to mention, proof of payment for the final lump-sum lien payment for the outstanding amount. In some cases, you might have to get this process notarised, with legal proof that your new lienholder is satisfied.

4. Request That The Lien Is Removed At The DMV

One crucial detail to note in how to remove lien from title is the mention of the lien on your car’s title. Even with recognition from your lienholder and a lien release letter, the lienholder’s name would still appear in the title. To get it removed for good, you’ll have to visit the local state DMV offices. Bear in mind that this process, differing from state to state, could otherwise be done online, or by mail.

If your state’s DMV can’t offer that, then you’ll have to make an in-person visit to a nearby branch. A phone call to schedule an appointment beforehand is a great idea to skip the queue. Now, depending on state laws, how to remove lien from title may have to be carried out at the tax office, instead. This is why a phone call to the DMV can be quite useful in understanding precisely what steps to take.

Mercedes car dealership dealer used new vehicles

As you arrive at the DMV, make sure you have the documents ready. Usually, these would, including some new ones that you’ll have to apply at the DMV, include the following. While you’re there, make sure you bring the original documents. Some DMVs won’t accept any photocopied papers, especially when concerning the lien release letter and court order:

  • Vehicle’s existing title, which includes the name of the lienholder
  • Personal identification and driver’s license
  • Lienholder’s release letter (or a form, depending on the state)
  • If applicable, the court order for involuntary liens
  • Application form for a new, updated car title (with the lienholder’s name removed)
  • Settle any processing fees or payments to the DMV (usually, around $20 or so)

Can You Sell A Car With A Lienholder In The Title?

One commonly asked question alongside how to remove lien from title, is whether or not you can sell your car, even with a lien on it, and the lienholder’s name in the title. Indeed, you have the right and liberty to sell your vehicle if you so wish, even with a lien held against it. However, there are several conditions and caveats attached to this. Mainly, the lender still needs to be paid in full.

Therefore, and let’s say you’ve managed to sell your car, the lender gets the money first. They’ll then subtract any sum owed to them (by you) before passing off what’s left from the sale back to you. In other words, you can’t get the money until your lienholder has been fully paid any outstanding dues. Once the lienholder is satisfied, they’ll clear the title, and allow you to pass it on to the buyer.

Do be wary of your car’s value before you decide to sell, though. If you sell for less than what you owe to the lienholder, you’ll have to pay the difference. This is relevant if the market value of your car has dropped below the initial financing deal. Let’s say the original lien was for a $30,000 loan, but you’ve only paid $7,000, and your car sold for just $20,000. You’ll now have to pay $3,000 to the lienholder.

Should this be done through a dealership, they can help sort out all of the paperwork. If you’re selling your car privately, though, it’s a good idea, to be honest, and disclose to potential buyers that a lien is issued against the car. You can discuss with them who to pay, and the amount, for a clean (lienholder-free) title to be issued to them. Either way, the buyer has several options:

How About Buying A Car With A Lienholder In The Title?

  • Issue two cheques, one to the lienholder to settle any unsettled loans. And, the other can be written to the seller, encompassing the amount beyond the lien. For example, let’s say that the car is valued at $30,000 with $10,000 in outstanding liens. One check will be issued to clear out $10,000 in dues to the lienholder. Meanwhile, another cheque for $20,000 will be paid to the seller.
  • Or, the buyer can contact their lender to help make arrangements with the seller’s lender. As a buyer, their lender might have policies and processes in place for acquiring cars with liens attached to them. This is much easier for both parties, as the lenders will manage all the necessary documentation and payments. Similarly, the buyer’s money will pay off the seller’s lienholder first.
  • Alternatively, you could rely on an escrow service. This is handy if the buyer is unable to settle their dues, and the lenders of both parties are unwilling to cooperate. Setting up an escrow ensures that the buyer and seller can put up both ends of the bargain into an account. The buyer puts money into the escrow, while the seller puts up their title. They’ll be approved once the lien is released.

One important thing to note with escrow services is their frequency in scams. Some have advertised similar car buying and selling escrow platforms, only to run off with the money afterward. It’s best to rely on localized and in-person businesses that offer an escrow account. That’s compared to escrows set up for online car shopping, which can more easily disappear without a trace.

Final Thoughts On How To Remove Lien From Title

That then is a great place to stop off in our guide on how to remove lien from title. As you can see, it’s fairly straightforward from start to finish. The only major hurdle is having to settle however much you owe to your lienholder. That’ll depend on how substantial the amount is, and whether or not you can afford it. Nevertheless, paying it will be necessary to have your title be released and declared clean.

Once that’s done, a bit of correspondence with both your lienholder and the DMV should now see the car be lien-free. If you need to get rid of the car, even with a lien attached, at least you’ll now know that it’s possible. The buyer, to get the car at all, will have to settle the lien first, as the leftovers will then trickle into your pocket. Overall, how to remove a lien from title isn’t nearly as daunting.

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