Buying a Used Car with a Lien

[CaptainYooh]

I’ve never before purchased a used vehicle with someone’s financing lien on it. Can someone who has and understands the mechanics of it explain the process, please?

Seller is telling me that we can meet at his bank and I can pay out his lien first to the lender holding it and then pay the balance to him. I get this part. What I don’t understand is the status of the car during a “limbo” period needed for the lender’s lien to be removed from the VIN registration, which can take 30 days or more.

Technically, simultaneously with the payout the Seller would be giving me a bill of sale and I should be able to register the vehicle in my name. But wouldn’t the registry see the active lien at that time and make me responsible for it during that limbo period? Am I overcomplicating this?

[Gravitykillr]

The Seller's bank can provide you a letter stating they don't have any interest in the vehicle any longer and a discharge of the lien is in the process. The registry shouldn't have any issue doing your registration with the letter from the Bank.

[CaptainYooh]

Seller’s bank is ATB. The lien on the vehicle is held by one of those third-tier car financing companies, which dealers make arrangements with.

[ResAlien]

Is this a Canadian thing? I'm trying to figure out why you'd want to take over someone else's loan. What's the value to you? I gotta be missing something

[Erick Estrada]

Originally Posted by ResAlien

Is this a Canadian thing? I'm trying to figure out why you'd want to take over someone else's loan. What's the value to you? I gotta be missing something

The way it's supposed to work is that the seller gets a payout letter from his lender within a few days from transaction and on the day of the sale, the buyer goes to the bank with seller to deposit the bank draft from the sale and immediately pays off the loan on the car at the teller providing a receipt. It will take at least two weeks for the lien to actually be cleared after that date. I've done this many times and it's never a problem.

[topfiverecords]

Do your due diligence to ensure that your money is actually going to the lender, for the amount actually owing on the vehicle and you're not being scammed.

[Gravitykillr]

Originally Posted by CaptainYooh

Seller’s bank is ATB. The lien on the vehicle is held by one of those third-tier car financing companies, which dealers make arrangements with.

I know ATB will provide you a letter when the loan is paid off.

[Erick Estrada]

Originally Posted by topfiverecords

Do your due diligence to ensure that your money is actually going to the lender, for the amount actually owing on the vehicle and you're not being scammed.

That's why the buyer goes to the bank with the seller and witnesses the loan payout and receives a copy of the transaction receipt.

[ken0042]

I think the point was to make absolutely sure the loan payment is going to this car that is being purchased. Seeing as they aren't going to the actual "bank" where the loan is from, it wouldn't be hard to have a payment go towards a different loan.

[CaptainYooh]

Originally Posted by ken0042

I think the point was to make absolutely sure the loan payment is going to this car that is being purchased. Seeing as they aren't going to the actual "bank" where the loan is from, it wouldn't be hard to have a payment go towards a different loan.

That too. To be clear, I don’t have any reasons to believe that the seller is a scammer. I’ve been to their house to test drive and they look like a nice young family. But… they said they leaving Canada for a couple of years and I don’t need any hassles with going after their lender if there are any issues.

[Erick Estrada]

Originally Posted by ken0042

I think the point was to make absolutely sure the loan payment is going to this car that is being purchased. Seeing as they aren't going to the actual "bank" where the loan is from, it wouldn't be hard to have a payment go towards a different loan.

The buyer must provide the bank teller with the loan payout letter and the letter should include the loan number, VIN, and the payout balance. I don't know how you could pay off a different loan without the bank teller catching that unless the seller had several car loans from the same institute. This is pretty common stuff as private used car sales are carried out this way every day and you don't hear of too many scams. Buyer can always ask for a copy of the payout letter a day in advance and perform a check.

[ken0042]

Originally Posted by Erick Estrada

The buyer must provide the bank teller with the loan payout letter.....

That would certainly be safer. I guess my concern is the seller goes into ATB and does the standard loan payment like how the rest of their monthly payments go out.

[blankall]

Originally Posted by ResAlien

Is this a Canadian thing? I'm trying to figure out why you'd want to take over someone else's loan. What's the value to you? I gotta be missing something

Fairly common for people to sell vehicles they still owe on money. Typically they are relying on sale proceeds to pay off the loan.

[Bill Bumface]

I've been through this a few times before, largely echoing what others have already said, but it depends on your risk tolerance and trust of the seller. You a few paths:

1. Wait for them to produce proof that the lien has been released, and possibly confirm this for yourself if you're worried they forged it.

2. Go to the bank with them and watch them pay the loan off.

3. Get them to show you receipt for paying off the loan and a loan statement showing that the amounts line up.

In sales where people have been using their work email address to communicate or have been showing the vehicle at their private residence, I get a lot more trusting. With the bill of sale you should have a copy of their ID etc. as well. If you can be fairly certain they aren't using a fake identity on you, that's a good start.

[TorqueDog]

The way you make certain that the lienholder is satisfied and the buyer doesn't just feck off with the money is you need to make the bank draft co-payable to the lender and the seller.

The seller should be able to provide you with a loan payoff letter from the lienholder that states the amount due, the date until which the pay-off quote is valid, and the account information.

So if you're buying a car from Bill Bumface and he's financed it from TorqueDog's Loansharkery under account #6969, you'd make the bank draft out to "TorqueDog's Loansharkery Acct #6969 and Bill Bumface". Alternatively, I guess you could make two drafts -- one for the lien payout for TorqueDog's Loansharkery Accct #6969 and another to Bill Bumface.

I've only ever done this in a private transaction with a Scotia loan, and then it was just as simple as having the bank draft be co-payable since where I was depositing the funds was also the place holding the loan.

[CaptainYooh]

Thank you, guys, I appreciate the feedback. I feel like I’m not making my point clear enough.

I am not going to give the whole amount to the seller. He will provide me a payout statement from his lienor and I would get one draft prepared in that amount. Or, to make things even simpler, we’d meet at my bank and the teller can withdraw funds from my account and transfer them to the lienor’s account directly. Then I would get a draft for the balance payable to the seller. This is relatively simple.

The concern for me is lack of anything confirming that the lien is gonna be removed. Lienor will need to issue a no interest letter of some kind but that may take a few days I’m told. Then I can take it to the registry to clear the lean off of the VIN which may take 3-4 weeks or so.

Ideally, the seller would have this lien paid off and removed prior to the sale but they can’t, they don’t have the money to do it. If this was a real estate sale, then two lawyers would have exchanged their trust obligations to remove the mortgage and other encumbrances from the title and the buyer wouldn’t care. In the absence of lawyers, there is nothing that I know of guaranteeing that the lien will be removed upon payment. Unless I’m missing something and there is (it must be, right?).

[Calgary]

Seems like a lot of work to buy a car. Is it some
Kind of unicorn?

[puffnstuff]

Who holds the lien? Do they have an office that can issue a reciept?

[DoubleF]

Originally Posted by ResAlien

Is this a Canadian thing? I'm trying to figure out why you'd want to take over someone else's loan. What's the value to you? I gotta be missing something

Usually if you do this, your aim is to get a bit of a discount vs other vehicle options due to the hassle. So a few extra hours of work and maybe a little bit extra waiting, get a few hundred to a few thousand off.

It's also a sort of risk tolerance thing, but if done right, I dunno if it's worse than the risk of those fake certified cheque scam. You should be able to avoid any risk with relative ease.

[troutman]

Could you do it through lawyers, with trust conditions?