If you have a lien listed on your car's title -- signifying an auto loan provider has financial interest in the vehicle -- you probably can't transfer ownership to a seller. Very few states allow title transfers when a lien is listed on the title. Remove the lien from the title before you sell the car or obtain a proper lien release to give to the seller.
Lien Release
Obtain an original lien release from the title's listed lien holder. This document is an official letter from your lender; it lists the vehicle's information, such as year, make, model and identification number, as well as the date the loan was satisfied. The letter is printed on bank letterhead and signed in ink by a lender representative. This letter, when supplied with the title, releases the lien. If you don't have the letter and have paid off your loan, contact your lender to receive another. If you are using the vehicle's sales price to satisfy the loan, your lender will give you a lien release once you make your payment.
Applying for a Clear Title
Some states hold titles. If you live in one of these states, your title was sent to your lender instead of you. You'll have to pay off your loan to receive the title before you can transfer ownership. If you have already paid off your loan but didn't receive the title, apply for a duplicate at a state motor vehicle office. Some states offer a spot for the lien holder to sign once the lien is satisfied; look on the front of your title to see if a spot exists. If so, you do not need to apply for a new title. If the title is signed by the lien holder, it will be removed when the buyer titles the vehicle.
State Rules
Very few states allow title transfers when a lien holder is listed on the title. Even if the lien is satisfied, you must still provide a lien release to apply for a clear title or to provide to the buyer so he can transfer the title to himself. Without the necessary release of lien, the buyer won't be able to transfer ownership. To determine the rules of your state, call your state's motor vehicle department to find out about the title transfer and lien release process.
Risks and Selling Issues
Even if you determine that you can transfer your title with a lien present, you should still obtain a proper lien release or clear title before selling the vehicle. Many buyers are careful not to purchase a car with a lien, as it signifies that an auto loan hasn't been paid off. If a buyer agrees to purchase your vehicle without proof of lien release, the vehicle may be repossessed if you fail to pay your lender. Avoid any issues with your seller by having all title transfer paperwork ready.
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