Calgarypuck Forums - The Unofficial Calgary Flames Fan Community - View Single Post - Anyone ever purchase a vehicle at auction?

Kjesse · 11-15-2008, 12:41 AM

I'll try to state simply the implications of a lien on a car. Its not easy because there are so many minor details that whole books have been written about liens and their implications.

A lien on a car is similar to a mortgage on a house. It is debt that attaches to the asset. Liens and mortgages are securities that give an unpaid lender a realizable interest in the asset... in other words...

...whoever owns the lien (the lender) can, if payments aren't made under the debt according to whatever agreement is in place (the loan), force the sale of the car and have the loan paid from the sale proceeds.

So if you buy a car you think is worth 10K at auction, for 5K, and later find out there was was lien on the car for 5K, the lien holder could seize the car you paid for, sell it.... and whatever it sells for, the lien holder gets the first 5K, and you get the balance. (Keep in mind fees for the sale and fees for the seizure usually get paid first.) If the car sells for 7K, you get 2K back at most. If the car sells for 4K, you get nothing.

You can always find out if a lien exists before purchasing the car (liens, and all securities, must be registered to attach to the asset... in the case of cars, at a provincial registry), so I'm not sure how Ford Prefect got into that mess. It can happen though. You'll note he got his money back, it sounds like someone made a mistake (and the mistake was likely not Ford's).

The auctioneer is not there to defraud you, it is in their interest to disclose if a lien exists, and that is the common practice... when you buy at auction you should always check the terms of the sale, but normally you are bidding based on a clear title being passed to you.

To go further than what I was trying to answer:

People at auctions who seem to bid the price up but aren't legitimate purchasers, but instead are ensuring an item won't sell below a certain price (regardless of the secret reserve price) are called 'shill bidders', and that is illegal.

The reserve price is set and kept secret for a reason... it is the lowest price at which the owner is obligated to sell. If you bid and win the auction, but your winning price is lower than the reserve price, the owner has an option to refuse to complete the transation. If your bid is higher than the reserve price, the owner is obligated to pass title.

Reserves are there to allow the seller protection from a disaster, and should discourage the owner from planting shill bidders. If the auctioneer announces that an item is being auctioned with "no reserve" you should rejoice that there is a chance that Ferrari might be yours for $100, but remember that someone willing to take that much risk may have also planted someone on the floor to make sure you won't get it for that price.

Caveat Emptor

11-15-2008, 12:41 AM	#10
Kjesse Retired Join Date: Oct 2003 Exp:	I'll try to state simply the implications of a lien on a car. Its not easy because there are so many minor details that whole books have been written about liens and their implications. A lien on a car is similar to a mortgage on a house. It is debt that attaches to the asset. Liens and mortgages are securities that give an unpaid lender a realizable interest in the asset... in other words... ...whoever owns the lien (the lender) can, if payments aren't made under the debt according to whatever agreement is in place (the loan), force the sale of the car and have the loan paid from the sale proceeds. So if you buy a car you think is worth 10K at auction, for 5K, and later find out there was was lien on the car for 5K, the lien holder could seize the car you paid for, sell it.... and whatever it sells for, the lien holder gets the first 5K, and you get the balance. (Keep in mind fees for the sale and fees for the seizure usually get paid first.) If the car sells for 7K, you get 2K back at most. If the car sells for 4K, you get nothing. You can always find out if a lien exists before purchasing the car (liens, and all securities, must be registered to attach to the asset... in the case of cars, at a provincial registry), so I'm not sure how Ford Prefect got into that mess. It can happen though. You'll note he got his money back, it sounds like someone made a mistake (and the mistake was likely not Ford's). The auctioneer is not there to defraud you, it is in their interest to disclose if a lien exists, and that is the common practice... when you buy at auction you should always check the terms of the sale, but normally you are bidding based on a clear title being passed to you. To go further than what I was trying to answer: People at auctions who seem to bid the price up but aren't legitimate purchasers, but instead are ensuring an item won't sell below a certain price (regardless of the secret reserve price) are called 'shill bidders', and that is illegal. The reserve price is set and kept secret for a reason... it is the lowest price at which the owner is obligated to sell. If you bid and win the auction, but your winning price is lower than the reserve price, the owner has an option to refuse to complete the transation. If your bid is higher than the reserve price, the owner is obligated to pass title. Reserves are there to allow the seller protection from a disaster, and should discourage the owner from planting shill bidders. If the auctioneer announces that an item is being auctioned with "no reserve" you should rejoice that there is a chance that Ferrari might be yours for $100, but remember that someone willing to take that much risk may have also planted someone on the floor to make sure you won't get it for that price. Caveat Emptor Last edited by Kjesse; 11-15-2008 at 12:52 AM.