Not something I’m doing, just curious.
With people looking to get out of their bad car deals, what happens if I buy a car that is financed? Do I owe anything to the finance company? Can they repo my car if the buyer decides not to pay the loan? Can I get the title in my name if the lender still holds the pink slip, either physically or electronically? And if not, could I even register it? I know that YMMV depending on state.
It depends on the state. In some states, you don’t get the title until the car is paid off, so you can’t just sell it to someone. You would need to contact the finance company and get their permission first. In other states, you get the title but you need to get a lien release before the car can be sold. A dealer will often pay off the loan as part of a trade-in deal, but an individual often will not be willing to take on the loan or the lending company might not be willing to go forward with transferring the loan to someone else.
The people I know that have gotten themselves out of bad deals generally end up surrendering the car to the fincance company and taking a hit on their credit.
I’d be really surprised if you could buy a car and register/title it in your name without the loan being paid off first. You didn’t take out the loan and the bank/finance company didn’t check your credit etc. So they absolutely don’t have to let you assume the loan.
I’m in Pennsylvania. If I buy a used car/boat/trailer I don’t hand over the cash until we are at a notary doing the paperwork. If the seller doesn’t want to do that, the sale is off.
When I’m selling a car/boat/trailer I suggest we meet at a notary. One guy who I sold a pontoon boat and trailer to wanted to skip the notary part, so he wouldn’t have to pay sales tax. Fine with me. A few years later he wanted to sell the boat and couldn’t. He somehow tracked me down and convinced (paid) me to meet him at a notary to complete our previous sale.
In NJ, you don’t get the title until you pay off the loan, so the seller couldn’t sign over the title to you.
In the UK, it is possible that if you unwittingly buy a car with outstanding finance the finance company may try to recover the outstanding debt from you.
If you can demonstrate that you bought the car “in good faith” they will have to try to recover the debt from the original borrower.
In the states I’ve been familiar with, the finance company’s name is on the title as a co-owner or some other term. Title cannot be transferred unless all the people/companies on the title sign off on it.
Not having had a financed car in over 50 years and never having sold one still under a loan, I am of course not sure of the exact procedure. If I was setting up the rules of such sales it would be something like: 1. The buyer gets the info from the finance company to verify the sale price is at least as much as the outstanding loan or in some cases a payoff amount that includes other fees. 2. The buyer writes the check to the finance company. 3. The finance company deducts their share and sends the rest to the seller.
But checking around it does appear that the check goes to the seller, the seller is then supposed to pay off the loan, then the title is cleared for transfer. That seems to be fraught with issues.
In Washington (State) the buyer doesn’t get a title document — required to do any sort of transfer — until all liens are satisfied. The registration lists both the registered and legal owners.
I think this is rarely true in the US.
When a buyer finances a purchase (i.e. buyer supplies part of the purchase price; a lender provides the rest), the agreement with the lender will almost always include a Purchase Money Security Interest (PMSI). This specifies that if the buyer fails to make payments as specified, lender has the legal right to seize and sell the asset to cover the amount owed (plus the cost of the “repo” process). The lender is in effect a part-owner of the asset.
This right does not evaporate because the buyer transfers his share of the ownership to some third party - absent a new agreement, lender retains the specified repo rights.
It sounds like the issue is you cannot transfer your ownership without the title which you cannot get while there is still a debt owed.
I suspect most US states handle it this way.
But in any case, even in the hands of a new purchaser the asset remains subject to any repossession provision the previous owner agreed to, so claims of “Hey, I bought it in good faith” avail nothing. Which means that before buying any moderately valuable item second-hand, due diligence really must include a careful check for unsatisfied liens.
Simply making that as a statement would not help here either. The purchaser would need to show some proof, such as a trade advert and a sale document/receipt.
“The bloke in the pub who sold it assured me that it was kosher” would cut no ice as the repo company lifts the car onto their truck.
For my hypothetical, I’m assuming the buyer was smart enough to get a bill of sale.
“You can’t sign off on the title if it has a lien” is technically true, but to an inexperienced buyer, you may not notice the section about “First lien held by” on the title and just accept that the seller signs it and hands you the document. You’ll find out pretty quick, though, that you don’t have full ownership in the vehicle when you take the title to have it transferred (here in Michigan that’s handed by Secretary of State, but other states may have it handled by DMV, etc). And in that case, boy are you in for a world of hurt, as that person has probably already spent the money you gave them (or sheltered it) and good luck trying to get it back.
I just found this out. I always thought that the person that bought the car was the owner, the finance company was the lienholder and the pink slip was in effect the collateral. Nope. It seems that the finance company actually owns your car until you pay it off. I think that makes for an interesting contract. I found this out when one guy was doing uber and since that violated the sales agreement, the car was repo’ed.