WARNING: This story requires the reader to hum and sing along. Readers may become better educated car-buyers, but may also have a song stuck in their head for a minimum of 12 hours.
Some…times in our lives, we all have pain
We all have sorrow
But, if we are wise
We know that there's, always tomorrow
Go ahead – sing it out loud. No one is watching or listening ;)
Lean on me, when you're not strong
And I'll be your friend
I'll help you carry on…
“Lean on Me” - the immortal classic by Bill Withers. Ranked 208 on Rolling Stones’ list of the 500 Greatest Songs of All Time; it still feels as good today as when it was released 45 years ago. But there are times when you most definitely don’t want to be leaned on; or technically, ‘liened’ on. Like when you trade in a car for a new(er) one.
So What Exactly is a Lien?
A lien is a legal “encumbrance” registered on a person’s property to secure a debt the property owner owes to another person/business (commonly a bank/lender). In the case of a car loan, a bank (or finance company) will register a lien against the vehicle giving them the right to take possession of it should the borrower default on the loan and to sell the vehicle to recoup the outstanding debt.
So, it’s really important you DON’T buy a vehicle with an outstanding lien! Historically, this was only a concern for consumers buying a car privately because it is illegal for a registered dealer to sell a car with an outstanding lien. But recently, OMVIC (Ontario’s vehicle sales regulator) has encountered a small number of dealers failing to remove liens from vehicles that were traded in and later resold. We’ve talked about these situations on Dave’s Corner Garage.
“In one case, the dealer received the monies required from the customers’ banks to pay for their new vehicles and payoff the loans on their trade-ins; however the dealer didn’t pay off the loans,” explained OMVIC CEO, John Carmichael. Instead the dealer tried to keep up the monthly payments on his customers’ old loans; and he sold the trade-ins to other customers, even though they had liens on them. Financially, it was a house of cards that left all the consumers involved at risk.” Risk because the banks who held the liens could demand the money from the customers who had traded in their vehicles or, the consumers who purchased the vehicles would be at risk of having them repossessed.
In each of these unusual cases, OMVIC took steps to revoke the dealerships’ licence. And because the consumers had bought from a registered dealer, most were ultimately protected by the Motor Vehicle Dealers Compensation Fund - so the actual consumer harm was minimal.
OMVIC wants car-buyers to know that there are early warning signs indicating the loan on a trade-in was not paid. “If a consumer notices a payment is debited from their bank account for a vehicle they have traded in, they should take immediate action,” urges Carmichael. “They should contact the dealer and their financial institution. If that doesn’t rectify the problem, they should contact OMVIC.” And should a dealer offer to make the monthly loan payments on a customer’s trade-in, rather than pay off the loan in full, consumers should understand that this is a huge risk and contact OMVIC immediately.
To determine if a lien is registered against a vehicle, consumers can purchase a Used Vehicle Information Package (UVIP) from Service Ontario, or a vehicle history report from CarProof/Carfax Canada. Both of these are invaluable tools, particularly when buying a vehicle privately! Additionally, consumers who encounter a problem in a transaction with a registered dealer can contact OMVIC’s Complaints and Inquiries Team at 1-800-943-6002x3942 for free assistance. Because every now and then, you might just have a problem that they’ll understand and we all need somebody to lean on.