Leaning back against the hood of your car, one foot lifted behind resting on the bumper, silhouetted by a setting sun—a potentially awesome picture for a car lover. But despite the photographic and artistic appeal, it’s not a picture many car owners would risk today, because we’ve learned a sometimes painful and costly lesson: those little metal rivets on our jeans love chipping and scratching away at a vehicle’s paint, and that road grit we didn’t even notice, will grind into a beloved car’s clear coat like a small piece of sandpaper. Yes, leaning on your car can be a bad idea, and leaning on someone else’s car—well that’s a whole other level of social faux pas—but even that is not as serious as a lien on a car.
WHAT IS A LIEN?
A lien is a legal “encumbrance” registered on a person’s property to secure a debt the owner owes to another person/business (commonly a bank/lender). In the case of a car loan, a bank (or finance company) will register a lien against the vehicle giving them the right to repossess the vehicle should the borrower default on the loan, and sell the vehicle to recoup the outstanding debt.
WHEN YOU NEED TO WORRY ABOUT LIENS
If you are buying a used car from a private seller, you need to do serious due diligence and make sure that the car you’re buying doesn’t have any liens registered against it. And yes, there can be more than one. A bank could register a lien against a vehicle and so could a mechanic for unpaid repairs, or a second bank if the vehicle was used to secure a different loan. There have been nightmarish stories of consumers unknowingly buying cars privately with liens. If they can’t track down the seller they’re either on the hook to pay the debt secured by the lien, or have their vehicle repossessed.
Registered Dealers on the other hand, cannot legally sell a car with an outstanding lien. However, in recent years, OMVIC, Ontario’s vehicle sales regulator, has encountered a small number of dealers who have done just that. John Carmichael, OMVIC CEO and Registrar, explains: “The customers of these dealerships traded in vehicles that still had money owing on them—loans that were to be paid off by the dealer as part of the financing of the consumers’ new vehicles. Unfortunately the dealers did not pay off the loans.” The dealers then sold the vehicles that had been traded in, still with liens, to unsuspecting consumers. “So OMVIC uncovered a situation where some consumers were making loan payments on a new car and on the vehicle they’d traded in, while other consumers who’d bought the vehicles that had been traded in were in jeopardy of having their vehicles repossessed.” OMVIC took steps to revoke these dealerships’ licenses and fortunately, because these consumers bought a vehicle from an OMVIC-Registered dealer, they were able to file claims with the Motor Vehicle Dealers Compensation Fund and, in most cases, received the funds required to pay off the outstanding loans and have liens removed.
WHAT CONSUMERS NEED TO KNOW
While it doesn’t happen often, OMVIC wants consumers to recognize the early warning signs that indicate the loan on a trade-in was not paid off. “If a consumer notices a payment is debited from their bank account for a vehicle they have traded in to a dealer, they should take immediate action,” urges Carmichael. “They should contact the dealer and their financial institution; if that doesn’t rectify the problem, they should contact OMVIC.” And should a dealer offer to make the monthly loan payments on a customer’s trade-in, rather than pay off the loan in full, consumers should understand this is a huge risk and contact OMVIC immediately.
For consumers buying privately, do a lien check before turning over any money. A Used Vehicle Information Package (UVIP) available from ServiceOntario and CARFAX Canada (CarProof) report will provide you with lien information; however, CARFAX may provide additional information such as an accident history, if the vehicle has ever been reported stolen and whether the vehicle was ever registered in the U.S. or another province.
OMVIC’s Complaints and Inquiries Team offers free assistance to consumers who may have an issue arising from a transaction with a Registered Dealer and can be contacted both by phone: 1-800-943-6002 x 3942 or email: email@example.com. OMVIC.ca also has great resources for any prospective vehicle buyer, whether buying from a dealer or privately.
Ultimately, becoming an educated consumer and learning to avoid issues before they occur is always the best route to take. Because whether it’s a lien, or a lean, not every problem will buff right out.