22

I was curious why is it considered a "bad idea" to purchase a motorcycle/vehicle with a lien on it?

It started when I came across an ad on Craigslist where I'm interested in buying a used vehicle. However, the seller mentioned that there is a lien on it. When I searched what a lien was, many people mentioned that it was a really bad idea to buy something with a lien on it, without going into too much detail why.

From what I understand so far, a lien is basically an asset that is owned by an individual but that individual still owes money to a lender. Why is this known to be a "really bad" or "avoid at all cost" type of deal (which was the general consensus)? Can't I ask how much there is left on the lien and negotiate that into the final price?

Update*: I purchased the bike. Pretty simple (so far), I went to the seller's credit union and paid the bike's lien with my cash. The bank clerk signed off the lien on the title and then the seller put my name on the title. I just need to take the title and change it to my name (I'm holding onto the original title and bike). Thanks to all who helped!

  • 3
    I think you may be wrong about the lien just being an outstanding loan. After all, that is a pretty standard thing these days, and (at least in the states I'm familiar with) would be obvious on the title certificate. It might instead be something like a mechanic's lien (for unpaid work) or a court judgement of some sort. – jamesqf Apr 20 '17 at 18:52
  • 3
    In summary: yes it's a bad idea. There are plenty of other motorbikes. Don't fixate on this one. – user207421 Apr 21 '17 at 3:20
  • 1
    There are plenty of ways for you to get screwed in this deal. Find a different bike. – Bob Jarvis - Reinstate Monica Apr 21 '17 at 11:42
  • @BobJarvis what other reasons are there? I agree that there are plenty of other bikes but if I can safely go through this transaction (if everything works out), then it works out for everyone. – robjob27 Apr 21 '17 at 14:22
56

In the case of a vehicle with a lien, there is a specific place on the title to have a lien holder listed, and the holder of the lien will also hold the title until the lien is cleared.

Usually this means you have to pay off the loan when you purchase the vehicle. If that loan is held by a bank, meet the seller at the bank and pay the loan directly with them and have them send the title directly to you when the loan is paid. This usually involves writing up a bill of sale to give to the bank when paying the loan.

The only thing you're trying to avoid here is paying cash to the seller--who then keeps the cash without paying the lien holder--who then keeps the title and repossesses the motorcycle. Don't pay the seller if they don't have the title ready to sign over to you.

  • 1
    Thanks, so in essence, you're saying that it is a bad idea only in the case where I give them the money directly to the seller because they could just take my money AND keep the bike? – robjob27 Apr 20 '17 at 16:19
  • 66
    @robjob27 No, they could keep the money, stop paying the loan, and the BANK could take the bike. – D Stanley Apr 20 '17 at 16:24
  • 1
    This is not a big red light if the lien is with a local bank, what you need to do is just go to their bank and do the purchase. Basically, you pay the bank and they give you the loan card with the excess going into the seller's account. I just transferred my car loan to my credit union to make it easier to sell locally for this very reason. – Ukko Apr 20 '17 at 20:11
  • 2
    So, in summary: Pay the person with the title, not the person with the bike? – Mooing Duck Apr 20 '17 at 22:03
  • 11
    @MooingDuck No. Your summary contains no mechanism to guarantee that you end up with the bike. If your advice is followed literally, the current owner remains in possession of a bike that is suddenly more valuable (because there is no longer a lien on it), and under no legal obligation to sell it to you at any price. – sdenham Apr 20 '17 at 23:03
16

It's extra work for you to purchase a vehicle that has an outstanding lien on it. It's not uncommon, but there are things to take care of and watch out for. Really, all it means is that the vehicle you're trying to purchase hasn't been paid for in full by the current owner. Where things can get dodgy is ensuring that all outstanding debts are paid against the vehicle at the time you take ownership of it, otherwise the owners of those debts could still reclaim the vehicle.

Here's a good article about making this kind of purchase.

  • 1
    Be aware that written agreements are not guarantees. If the seller reneges (as he apparently has already done on some other obligation, hence the lien), your only option may be to get a lien on the vehicle yourself, and actually taking possession will be expensive and time-consuming. Escrow might be an option, and Nathan L's answer looks like a practical form of escrow, if it is applicable to your suggestion. Without some form of escrow, I would not pay any money to anyone until the owner has discharged the lien. – sdenham Apr 20 '17 at 23:34
  • 4
    @sdenham: At least in the U.S., the presence of a lien does not imply that the seller has reneged on any previous obligation, as liens are taken out as a matter of course on many vehicle purchase loans. The cleanest way to handle transactions is to have a meeting between the buyer, seller, and lienholder. The lienholder is informed that the buyer is purchasing the vehicle and paying off the loan, and once all three parties have established that's what's happening, the buyer pays the lienholder who then effectively buys the vehicle from the seller and transfers it to the buyer. – supercat Apr 21 '17 at 17:15
  • The "steps" in "part 2" are confusing. Do you mean these are different options rather than steps? Steps imply you need to do all of them in order, rather than picking just one. – Kat Apr 22 '17 at 6:30
  • I've deleted the material that was copied from the link provided, as it was done a bit too indiscriminately. If you want to put it back, please summarise the relevant bits in your own words and only quote short excerpts: money.stackexchange.com/help/referencing – GS - Apologise to Monica Apr 23 '17 at 13:41
4

A lien is a mechanism to impede legal title transfer of a vehicle, real property, or sometimes, expensive business equipment. That's why title companies exist - to make sure there are no liens against something before a buyer hands money to a seller.

The lien can be attached to a loan, unpaid labor related to the item (a mechanic's lien) or unpaid taxes, and there are other scenarios where this could occur.

The gist of all this is that the seller of the vehicle mentioned does not have clear title if there is a lien. This introduces a risk for the buyer. The buyer can pay the seller the money to cover the lien (in the case of a bank loan) but that doesn't mean the seller will actually pay off the loan (so the title is never clear!). This article recommends visiting the bank with the seller, and getting title on-the-spot. However, this isn't always an option, as a local bank branch isn't probably going to have the title document available, though the seller might be able to make some arrangement for a local branch to have the title available before a visit to pay off the loan.

The low-risk approach is for the seller to have clear title before any money changes hands.

Not the answer you're looking for? Browse other questions tagged or ask your own question.