Recently my firm worked with a dealership on an issue involving a title for a used car. Our client had purchased from a private seller. Our client was contacted by an attorney who represented a repairman that claimed to have a lien related to repairs they claim to have done our client’s car while it was still titled to the prior owner. However, at the time my client took possession of the vehicle, there was no lien recorded on the vehicle’s title. By the time the dealer received the letter, the vehicle had already been bought, sold and re-titled at least twice. Unfortunately for opposing counsel, it appears that his client either sat on the lien for too long or failed to properly file its lien. As a result, the dealer had no duty to him because it had no knowledge of his lien. Additionally, because the dealer no longer owned or possessed the vehicle there was little the dealer could do to assist him.
InFlorida, if a good faith purchaser for value takes title to property, and there are no liens recorded on the title, it is very difficult if not impossible to enforce a lien against the good faith purchaser. While title laws vary from state to state it is never a good idea to delay filing items related to a vehicle’s title. Failure to act timely can lead to your dealership being liable for liens or for your dealership’s liens to be held invalid against subsequent purchasers.
If your dealership purchases a vehicle, but delays getting the title transferred it gives additional time to a third-party with a potential claim to file a lien on the title. In most states, even if the title is clean when you purchase it, if a lien shows up before you re-title the vehicle you may be subject to that lien. At the very least you may be required to participate in litigation to clear the title to the vehicle before you can sell it. While some dealerships do not take title to vehicles it purchases for various business and legal reasons, it is important that you discuss with your legal counsel the potential legal consequence of these business practices and make sure you have the best practices in place to protect your interests and avoid unnecessary litigation over title issues.
Additionally, most dealerships have some sort of document or language in the sales contract regarding liens. The seller of a vehicle usually agrees that they are not aware of any outstanding liens on the vehicle they are selling. While this is a good idea, it is also advisable to have language to the effect that the consumer agrees to indemnify, hold harmless and defend the dealership against any lien or other claims by a third party against the vehicle or its title. This type of language would require a consumer to assume responsibility for any title issues that arise after the sale of the vehicle. In some cases you can also include language that makes failure to disclose potential liens or claims against the vehicle and its title a breach of contract which would entitle the dealership to damages and attorney’s fee to the extent allowed by the laws of your state.
Finally, if your dealership has a valid lien, such as a mechanic’s lien, you should make sure you follow the law of your state and make sure your lien is filed correctly and promptly. If you delay and the vehicle is sold or title is transferred you may lose the ability to enforce or collect upon your lien. Additionally you must make sure that anything filed with the state related to the title is done properly and follow-up as much as is necessary to make sure your lien is perfected. If the state makes a mistake it is usually in your best interests to catch it and correct it as quickly as possible. Filing suit against the state might not be an option because the government often is immune from liability or has reduced liability.
As always I would highly recommend consulting with your legal counsel regarding title issues. While most dealers understandably do their best to keep their legal fees at a minimum, title law is not always as simple as it may seem. There are numerous appellate decisions that demonstrate that errors in dealing properly with title issues can be costly.