Lien Mitigation: What Happens When A Car Loan Is Charged Off?

  • 3 min read

So what if you have a car that you own or you purchased, and there was a loan on it but that loan has been charged off, went through bankruptcy, or maybe went through repo but they didn’t want the car back? What does this mean in terms of ownership if the lender didn’t take the car back?

What this means is that there was a loan on the car, the loan was in default and never paid off, but the lender doesn’t want to physically take back the vehicle. This doesn’t mean that you own the vehicle, it means that they didn’t want to be responsible for disposing of the car. The loan is still on the title record, the lien is still a cloud on the title. Even if it’s a bankruptcy, that’s going to show on the title. To remove this cloud of the title, what you need to do is what’s called lien mitigation. 

What is lien mitigation?

If you are the borrower of that loan, you’re going to need to contact the lender and have them issue a lien release letter. If you’re the borrower that did not pay that loan back, they might not be as motivated to do it. If you’re a third party that’s innocent that bought this car from somebody and you weren’t the person that defaulted on the loan, the lender might give you a lien release document. Either without costs or for a very small fee of just them doing the paperwork as long as you can represent your an arm’s length away from that borrower. Sometimes just on principle, they don’t want to give somebody a car that didn’t pay their bill. 

Remember a charged-off loan, a defaulted loan, or a repo that hasn’t been physically picked up, even if the bank told you they don’t want the car back, does not mean you own the car. That does not mean the lien is cleared, it just means they don’t want to go through the hassle of pain to get that car repossessed, shipped, inspected, and put through an auction because that might cost them upwards of $1,000 or more. If they’re not going to get that much from the car, they don’t really want it back. Now it becomes your problem because it’s on your driveway or in your garage and it’s a nuisance. You need to sell it or get rid of it. It doesn’t mean you own it just because they said they didn’t want it. You still have to go through the lien mitigation process. 

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