Who Holds The Title On A Financed Vehicle?

So when a vehicle is financed, where is the title? Who’s holding the title? This question comes up very frequently from clients in our car title division. What happens when a vehicle is financed is the owner of the vehicle, the driver, the borrower, they are listed as the owner on the physical title. The owner’s name is showing as the owner of the vehicle. However, there is a section on the title certificate that references the lien holder. So if you borrowed money, let’s say from Chase Bank to buy your vehicle, or Ford Motor Credit, the lien holder section will say the name of that lien holder printed on the title.

Role of the DMV in Title Issuance
So when the DMV or titling division in your state prints that title, they’re going to put that name in the title record and print it on the title certificate. Now, in most states, when that title certificate is printed by the DMV, it’s mailed to the lien holder. The bank actually gets that physical paper document, that certificate, and they hold it in their files while the loan is being paid. The name of the owner will still show as the owner. Technically, if you are, you know, the owner of the car, driving the car, you are the vehicle owner. You have insurance on it, you have it registered in your name, it’s owned by you. But the lien holder has what’s called a security interest or a chattel interest in that vehicle, and that chattel interest is what is their collateral to make sure you pay the mortgage or the car loan. If you don’t pay it, they can come get the car. Now they own it.

Selling a Financed Vehicle
But the record of that lien holder on the title also prevents you from doing something else, and that means selling it. You can’t sell the vehicle to another person with a lien on it because they are holding the title certificate with their name on it. Once you have paid the final payment on that loan, they then take that title from their records, sign it, stamp it paid, and they mail it to you. Now you’re holding it.

Owner Holding Title in Certain States
Now, there are a few states which allow the driver, the owner, to hold on to that title certificate even so. It still has the name of the lien holder imprinted on the title, so you still can’t sell it because it shows that there’s a lien against that vehicle ownership. So the title in most cases is held by the actual financial institution.

Paperless Titles
There’s a third scenario. Some states on later model vehicles, newer vehicles, are going to paperless titles. And what that means is there is no physical paper document issued and printed by the title division. There’s just an electronic record of that title. If you go to sell the vehicle, you can have a paper document printed if you want, but initially, they do not create that paper document. When that happens, then nobody’s holding the title. The lien is still recorded on the title record, the owner is still showing as you on the title record, but the paper document is not actually created.

Example of Electronic Titles
This is an example of a title. This is how a title looks for a vehicle when a vehicle is held under a non-paper title, electronic title state. That record is simply held by the DMV. Nobody gets a title. Once the lien is paid off, the financial institution will electronically clear that record from the title records at the DMV. At that point, you as the owner can print a paper title if you want. You can continue just to own it with a registration or transfer it to somebody else, or even if you trade it into a dealership, the dealership can look up that electronic title record and know that you’re the owner with no lien.

Leasing a Vehicle
There’s actually another scenario for the title of a vehicle if it’s leased. If you lease a vehicle, there’s another option. Now, we’re going to get back in a minute to lien holders and charge-offs and write-offs, how that works if the lien goes into default and if the lender doesn’t pick up the vehicle, what happens. But first, on a lease, you’ll find that on a vehicle that’s not financed by a bank but leased to you, now it’s going to be different. The owner is going to show the lease company as the owner. You’re not listed as the owner. You’ll be listed as a registrant. The license plate and registration will be in your name, but the title owner is the name of the leasing company, Taylor Motor Credit, whoever. In that case, the lease company will hold the title, or if it’s electronic, it won’t be issued at all. And once you pay the end of the lease, the car goes back to the leaseholder and you will never see the title. If you decide at the end of the lease to exercise your purchase option to buy the vehicle at the end of the lease, now the title is transferred from the lease company to you as the owner, and it will be like any other title transfer. Just like you bought a car from Facebook, it’ll have a signed transfer from the lease company to you.

Charge-Offs and Write-Offs
Well, if any type of loan goes into default and it’s not paid, many times the lien holder, the financial institution, the bank, whoever it is, will put it into collections. And after some period of time, they’ll stop really trying to collect it. They won’t spend any money trying to chase you around anymore, and they’ll do what’s called a charge-off or write-off. A charge-off of a loan, an auto loan, or any other type of loan is simply a designation from the lender financial institution that they no longer expect to get any money from this loan. It’s strictly a financial record, has nothing to do with the title. It’s a charge-off. And what that means is that when they do their balance sheet and asset disclosures to the federal government or for the taxes, they have to say that this loan is no longer an asset. We can’t count this loan on our books as something valuable to us. It doesn’t mean anything. Somebody owes us $7,500 on this car loan. We used to be able to put that $7,500 as an asset on our books like this money’s coming to us. As soon as it’s a charge-off, they have to say, no, we’re never going to get this money. So they can’t use it as an asset for financing, for their balance sheet, for any other purpose.

Impact of Charge-Off on Title
However, that charge-off event does not remove the loan record from the title. It does not take the lien out of the DMV records. If there’s a lien on the title document, if there’s a lien in the DMV records, it’s still going to be there after a charge-off. Now, if a vehicle is charged off, there may be an easier way to have it removed by requesting a lien release from the lender. That’s a different story. But up until that point, the lender or lien holder is still holding the title and have possession of that title certificate. Even if somehow you got your hands on it, it would still show that lien holder as having a beneficial interest or a security interest in that vehicle, which means you can’t sell it. Sometimes you can’t even renew the registration if you don’t have the title. So the lien and the title are two different things. The lien being charged off or write off does not remove it from the title record. In the meantime, the title certificate, that paper document, will be held by the financial institution until such time as that last payment is made.

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