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Title Transfers and Liens

Under the UCC (Article 2), a new car contract which purports to transfer ownership to the purchaser must be in writing. It should include a description of the make and model of the vehicle, its full vehicle identification number (VIN), a statement as to whether the vehicle is new, used, a “demo,” rental car, etc., the full price and any financing terms, a cancellation provision if certain conditions occur (such as the car not being delivered by a certain date), and a full statement of warranty terms.

Every transfer of title to a motor vehicle must include an odometer reading and statement of mileage from the transferor. For purposes of taxation, most states require an affidavit of purchase price as well.

Importantly, if the purchased vehicles are being financed, state law will dictate the form of title transfer. Some states will allow title to transfer to the buyers even though they have not yet fully paid for the vehicle, but the creditor/lender will encumber the title with a lien. Other states permit the creditor/lender to keep title in its name until they pay for the vehicle in total, then transfer title to them. In those states, the buyers maintain an “equitable lien” on the vehicle while it is being paid for but do not have legal title to it until their final payment has been made.

Under the UCC, after executing a purchase document, but prior to the delivery of the vehicle, the risk of loss or damage to the vehicle is allocated to the seller if the seller is a merchant (car dealer). If the seller is not a merchant under the UCC, the risk passes to the buyer upon tender of delivery, i.e., when the seller actually attempts delivery or makes the car available for pickup under the contract.

Generally, title to a vehicle cannot be transferred if there is any existing lien listed. Creditors will automatically file the necessary paperwork (buyers should receive a copy) to remove their liens against the title to their vehicles once buyers have paid them creditors in full. However, if buyers attempt to sell their vehicles while a lien is still recorded, the burden is on them to contact the necessary parties to effect a removal of the lien.

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