Did you pay off your auto loan, but there’s still a lienholder showing on the vehicle title? This is an inquiry we receive often at our help desk. Why doesn’t the DMV automatically release your lien from the title record once it’s paid off?
So why does this happen? When you have a loan on a vehicle, you make regular payments toward the total amount of the loan. Once you’ve made your final payment, the lender will take your vehicle title that they have in their drawer, stamp it PAID sign it, and mail it to you. What they don’t do is clear the lien from the title record. You may wonder why this isn’t done automatically, but since the lender and the DMV are two different entities, they don’t communicate with one another and your lender is not the person who issues a title. The Department of Motor Vehicles or equivalent in your state is the agency to issue vehicle titles and update the title records.
So now, the bank knows that you have a zero balance on your loan, and that’s fine. But the DMV does not know that you paid off your loan until the bank tells them. However, the bank normally doesn’t tell the DMV. They tell you they signed the title and stamped it paid. Sometimes they’ll give you a lien release document, which is a separate form that tells you your loan is paid. However, the DMV who is holding your title record does not know this event happened yet. The bank normally doesn’t tell them and here’s why, in order to do that, you have to pay a fee. You have to file some forms and you have to update the records. It’s not an excessive amount of money but it might take $30-$50 to change the title. It also takes some labor to fill out the forms and file them with the DMV.
Now let me ask you this. Do you like dealing with the DMV? Do you know how long it takes to work with that bureaucracy? Well, imagine you’re a bank and you have to do a thousand of those a day. So instead of allocating extra resources and employees to do all this, they just stamp the title paid sign it mail it to you. Now, as long as you have that title in your hands, You’re good. If you need to sell it, you’re good. But what if you lose that title? What if it never gets to you? Now, you’re in limbo because you know the loan is paid, the bank knows the loan is paid, but the DMV does not know the loan is paid. So what we recommend doing is as soon as you get that lien release or that title, take it right down to your titling authority and change the title record to reflect there is no more loan on that vehicle. There’s no longer a lien on that vehicle. That way, no matter what happens in the future your title is clear.
If you’re in a position where you lost a title, you didn’t get the paperwork from the bank, and now you’re trying to sell your car maybe move to another state maybe you already moved to another state and that state doesn’t have your updated title record. Well, now you have a problem. Now you have to go back to that lien holder to get a new document showing that they say the loan is clear because the DMV is not going to take your word for it. Even though it might be 10 years old. That car, the loan might be 10 or 15 years old. The DMV is not allowed by law to remove a lien claim on a vehicle just based on the owner saying there’s no more lien, because if that was the case then any owner who didn’t want to pay their car loan could just call the DMV and say Hey, my loan is paid off, take it off my title record. So they can’t do that. They have to leave it on there until they get a formal written document from the lien holder.
So, if you’re in a position where you have a vehicle maybe you have a loan maybe you bought it from somebody with a loan and you need to clear that lien, it’s very important that you do it a certain way. Don’t call up the bank or the lien holder to ask them to remove it because it won’t get done. They might say they’ll do it but then they won’t or they might just say we can’t do it or go to the website. They just want to get you out of their hair. The reason why is that banks don’t have staff that is dedicated to removing liens from title records, they don’t have staff for that. So what you have to do is you have to do most of the work for them, you fill out the forms you prepare them, and mail them to them by certified mail registered mail, priority mail something with tracking so that you know that they got it. Because there’s an employee there that can at least sign something. There’s probably not a staff at that bank that can fill out all the forms and find the right forms. First of all, every state has a different form, so they have to find it. So you might have to do some of the legwork so that it makes it easy for you.
The most important thing to keep in mind is lien releases do not happen automatically when you pay your last payment. The bank doesn’t clear it from the title records. In some states on newer vehicles, there might be an electronic lien that gets cleared but a lot of times we still find there are errors. If you’ve moved to a different state, that throws it out of whack too. If you got a loan one year before you paid it off and you moved to a different state. Now both states have conflicting records, so you’re going to run into problems. This is something that is very common, don’t feel like the bank or the DMV are singling you out.
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