Given recent economic considerations, in addition to the the many flexible methods of selling and searching vehicles online, more and more cars, motorcycles, boats, ATVs, and snowmobiles are being bought and sold among private parties. Assuming that you have done your research, chosen your vehicle, and negotiated a price, it is time to consider the legal process of title transfer. I cannot overemphasize the importance of receiving a title at the time of transfer in Minnesota. Beyond simply serving as proof of legal ownership, the title reflects any lien that may be recorded on the vehicle.
Checking for liens on the vehicle is critical because if a lien exists and enters default due to nonpayment, the vehicle may be repossessed from you. This is true despite the fact that you paid the full value of the vehicle. In making this rule, the law had to consider the interests of several parties. The lender from whom the original owner borrowed money likely pledged the vehicle as collateral on the debt. Conversely, having paid full value to the original owner, you may expect that you should receive clear title.
In balancing these interests, the law has determined that original lender has “priority.” It has been deemed that you, the buyer, are in the best position to look for a lien because the law requires liens to be recorded on the title. With this requirement in place, looking for a lien on the item you wish to buy is easier than the original lender continually mailing every potential buyer with a notice that there is a lien.
A lien will always be clearly reflected on the face of the title. In Minnesota, the left portion of the title will either say “No Security Interests” or “1st Secured Party”. The secured parties names and addresses are listed below the “1st Secured Party” indication.
The next question is what to do if you wish to purchase a vehicle with a existing security interest. I would suggest in this case paying the selling individual only the difference between the agreed price and the loan amount and signing an agreement with the individual for you to pay the remaining balance on their loan. This is, of course, provided the loan value is less than the agreed price (i.e., the vehicle is not “underwater”). You can then pay the remainder of the loan yourself, thus assuring that the lien is properly released.
A second option would be the original owner getting an unsecured loan or a loan secured by other property and you accompanying the owner to the bank to assure that the lien is paid in full. In this case, you will want some type of documentation that the loan has been paid and the lien is released.