Can you sell a vehicle with a lien? Sure! But the underlying question is should you sell a car with a lien? And how do you do it? Selling your vehicle is going to be more complicated with a lien, but it's entirely possible to transfer that lien to someone else. Not sure if you have a lien, or don't know what a lien is? Allow me to explain.

When your car has a lien, the lienholder has all the legal rights to your vehicle's title. For all intents and purposes, that means the lienholder owns your car. That might be the bank, the IRS, or even a mechanic's shop. You may or may not possess the actual title right now; either way, you will need the lienholder's signature to sell the car – and they usually want the lien paid in full at that time.

Here's something for all the scammers out there. It is illegal to sell a car with an active lien without disclosing that lien to the buyer. The buyer could take legal action against you when they discover the lien. Additionally, most liens attach not only to the car, but also to the person who owns it. That means selling your car with an active lien won't get you out of making the payments.

Some reasons you might have a lien on your car include:

  • You have unpaid repairs

  • Your vehicle was used for collateral on a loan

  • The car was leveraged to recover unpaid child support

Let's take a closer look at the options available to sell a car with an active lien and whether each one is a good idea or not.

Selling a Car With a Lien to a Dealer

The easiest option is to head to your local dealer and sell them the vehicle. Many places will consider this even if you are not purchasing your next vehicle from them. Find out what you owe on your current car and keep that number in mind while negotiating.

When you give the dealer what's called Power of Attorney, they will contact your lender and handle paying off the loan directly. You aren't actually trading in your vehicle because you don't technically own it. All you are doing is selling it to the dealer who is then paying off the loan before reselling the car. The dealer pays off what you owe and then applies the remaining balance toward your next purchase.

This won't always work. They will turn your car down if they can't get as much out of it as you owe. It also won't work if the lien is a Mechanic's Lien, court judgement lien, IRS lien, or any other type of complicated situation. It only works on a standard lien resulting from a car title loan.

Important Note – don't ever leave your car with the dealership until you've received all the appropriate documentation stating that the lien is satisfied.

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Selling a Car With a Lien to a Private Party

This process requires a little additional work, but it's completely possible. Many people prefer to put in the extra effort because it's possible to get more for the vehicle this way. This involves paying off the loan with the buyer's money. If you want to transfer the loan, skip to the next section below.

Here are some things to consider to ensure a smooth transaction:

  • Make sure you disclose the lien details right in your listing. Just create the ad as usual, and then add in the facts about the lien.

  • Attempt to sell in the same location as your lienholder if you can. For example, the parking lot at the bank that holds the lien.

  • Once you agree on an amount with the buyer, you can head to the lender and pay off your lien. Then, the ownership can be transferred to that person directly from your financial institution. You don't need the title to be transferred to your name first.

Note that it is illegal to sell a car with an active lien without disclosing that lien to the buyer.

Escrow Services Can Help

Some advantages of using an escrow service include:

  • They do most of the work for you. This makes the entire process less of a hassle for you.

  • You are ensured a legitimate and safe transaction. All the paperwork is provided for you.

  • The cost can be split between the buyer and seller. This makes fraud less likely, because even with liens it's possible to be scammed.

You might want to utilize an escrow service if the lender is nearby. This ensures a secure transaction for you and the buyer. This service provider assumes all responsibility for the payments from your buyer and holds the title until everything is complete, adding extra trust and security to the sale process.

Transferring Your Car Loan to Someone Else

There is always the option of enabling the buyer to take over your existing car payments. This involves the buyer taking the loan directly from you, and unless you agree to a partial cash payment in advance, no money will ever touch your hands.

The best way to handle this transaction is to meet with the bank and buyer at once. Sometimes the financial institution will allow them to take over in the same sitting, but there are often fees associated with this. However, it means the buyer won't need a lot of cash on hand to buy your car. Conversely, it means no money ever lands in your hand unless you negotiate a partial cash payment beforehand.

Can I Sell My Car to Someone and Keep Making the Payments Myself?

Sometimes, people will sell their car to someone else and just continue to make the payments. This isn't the way you want to handle your car title lien. First of all, the buyer has to trust you because they don't actually have the title to the car, the lienholder does (and once it's paid off, you do as the seller). Furthermore, if the buyer does anything to damage the car or participates in any illegal activity, the seller (you) is the one responsible for the losses because the car still effectively belongs to you.

This sort of agreement might not even be legal in your area – you would need to research those facts for yourself.

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What About an Underwater Car Loan?

If you have a high interest rate, you haven't made your payments, or your car is rapidly depreciating, your car loan is said to be underwater if you owe more than the vehicle is worth. This can be caused by damages, high mileage, or other forms of depreciation, and it makes selling the car very difficult.

If this is you, first of all, don't panic! There is still hope. Of course, you aren't going to receive an instant fix – we can't perform magic, but with a little work, you'll be free from this situation.

The first option is to keep your car. Try to make larger payments so you can get caught up. Then, sell it when you aren't underwater anymore. It's also possible that you could have the car refinanced at a different interest rate. This would lower your interest rate and allow for more affordable payments.

If you must sell your underwater car with a lien, head to the dealership for the best possible outcome. A dealership can apply the debt you owe toward a different car, so you will be paying off your new car and what was owed on the previous vehicle! We recommend opting for something low-cost unless you want to end up in the same situation yet again. Keep in mind dealers can do this with a new car lease as well.

Selling Your Underwater Loan to a Private Buyer

Of course, this is still an option, but you'll want the help of Dirt Legal to get you through this in one piece. The best reason to choose this course of action is to receive more money and lower your loan. Once they pay for the car, you can pay off the difference and transfer the title. You might lose some money but at least you will be out from under the loan.

Required documents include:

  • Bill of Sale – This document spells out the parties completing the transaction. It will include the price, date and transferred property. It should also contain the car's VIN and odometer reading.

  • Release of Liability – This confirms the sale and releases you from any liability. It should also contain the odometer reading and needs to be filed with the DMV as an official record.

No matter how you sell your car with a lien, you will face many legal issues that need to be dealt with properly. Make sure you know what's expected of you prior to moving forward.

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Tips for a Smooth Sale

If you want the sale to go smoothly when removing a car title lien, we've got a few tips for you.

  • Do the transaction at the lender's place of business, like the bank parking lot.

  • Don't forget to cancel your insurance coverage. You'll need the proof that your car was sold. Before you do this, you'll want to ensure that the new buyer shows you proof of insurance.

  • Take off your license plates. This also reduces your liability following the sale, but it will save you money on the next car you purchase as well.

  • Make sure you pay all the fees. Check with your DMV to tell you what's required when you sell a vehicle. This might include sales tax which can be paid with the final price of the car by the buyer.

  • Make sure your registration is current. If it isn't, you might face some trouble after the sale.

How Do I Find Out About Car Title Liens?

We don't want you to sell a vehicle with a lien by yourself. We have walked through this process countless times with other satisfied customers and we know how to get the job done right. If you want top dollar for your vehicle but you aren't sure of the steps to take, we are prepared to help you.

The best way to find out about the existence of car title liens is with a detailed Vehicle History Report. This document can reveal the presence of any loans or liens in your car's history. Dirt Legal can also acquire new titles and license plates for just about anything with wheels. Bookmark our services now in case you need them later.