When you get a loan to purchase a vehicle or otherwise use the vehicle as collateral for a loan, your lender obtains a lien on the vehicle, giving him certain rights to the car. If a lien is listed first, that means it has higher priority than any other lien on the vehicle. When the lien is released, its restrictions are removed, giving you greater control over your car.
Lenders can place liens on many types of assets, including houses and cars. While a lien is in place, the lienholder has a right to the collateral itself or proceeds from the sale of the collateral. For example, if you obtain a $10,000 loan to purchase a car, your lender has a $10,000 lien on the car. If you fail to make payments as required by the terms of your loan, it is this lien that gives your lender the right to repossess and sell your car to satisfy your debt. As long as you comply with the terms of your loan, your lender's lien simply sits idle on your title until you pay it off.
Satisfying a Lien
To get a lien removed from your title records, you must first satisfy the terms of the loan that put the lien in place. Typically, this means you must pay off the loan in full. Once your loan has been paid, your lender should provide proof that the lien is satisfied. Since many lenders hold onto the vehicle's title until the lien is satisfied, your lender may send you your car's title and a letter stating your loan is fully paid. Without proof of full payment and satisfaction of the lien, you cannot get the lien released. This will make it difficult to sell the car since it will not have a clear title.
Release of Lien
Even with proof that your lien is satisfied and loan is paid in full, the lien remains on your car's title until you take certain steps to remove it. The exact procedure varies by state but generally includes providing the title and proof of satisfaction of the lien to the government office that handles vehicle registration. Under Texas law, for example, you must take the vehicle title, release of lien letter and an application for a Texas title to a department of motor vehicles office to get the lien released and a clear title issued.
Fraudulent Lien Release
It might be tempting to forge paperwork releasing your vehicle lien so that you can transfer the vehicle to someone else without having to pay your loan in full. However, creating a fraudulent lien release can land you in hot water. In Missouri, for example, the lien release form must be notarized, adding a step of fraud protection. If you do fraudulently release the lien, you could be found guilty of a class C felony and even thrown in jail.
- New York State Department of Motor Vehicles: How to Remove a Lienholder from a Title Certificate
- Texas Department of Motor Vehicles: Add or Remove a Lien on a Vehicle
- Missouri Department of Revenue: Notice of Lien, Lien Release or Authorization to Add/Remove Name From Title
- Maryland Department of Transportation: Lien Release