Vehicle liens and how they can affect you

When you’re shopping for a used car, it’s important that you check the vehicle for an outstanding lien. Statistically, it’s common for a car to have a lien and if you don’t know about a lien before you buy, you could be on the hook for the consequences. 

What is a lien?

A lien is a legal claim against a person’s property to secure a debt the 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 repossess the vehicle should the borrower default on the loan, and sell the vehicle to recoup the outstanding debt.

When you need to worry about liens

If you are buying a used car from a curbsider you need to do serious due diligence and make sure that the car you’re buying doesn’t have any liens registered against it. And yes, there can be more than one. A bank could register a lien against a vehicle and so could a mechanic for unpaid repairs, or a second bank if the vehicle was used to secure a different loan. There have been nightmare stories of car-buyers unknowingly purchasing cars privately with liens. If they can’t track down the seller they’re either on the hook to pay the debt secured by the lien, or have their vehicle repossessed. 

Registered dealers on the other hand, cannot legally sell a car with an outstanding lien. However, in recent years, OMVIC, has encountered a number of dealers who have done just that. 

OMVIC’s CEO and Registrar Maureen Harquail explains “the customers of these dealerships traded in vehicles that still had money owing on them—loans that were to be paid off by the dealer as part of the financing of the car-buyers’ new vehicles. Unfortunately, the dealers did not pay off the loans.” The dealers then sold the vehicles that had been traded in, still with liens, to unsuspecting car-buyers. “So OMVIC uncovered a situation where some car-buyers were making loan payments on a new car and on the vehicle they’d traded in, while other car-buyers who’d bought the vehicles that had been traded in were in jeopardy of having their vehicles repossessed.” OMVIC took steps to revoke these dealerships’ licenses and fortunately, because these consumers bought a vehicle from an OMVIC-registered dealer, they were able to file claims with the Motor Vehicle Dealers Compensation Fund and, in most cases, received the funds required to pay off the outstanding loans and have liens removed. 

What car-buyers need to know 

While it doesn’t happen often, OMVIC wants car-buyers to recognize the early warning signs that indicate the loan on a trade-in was not paid off. “If a consumer notices a payment is debited from their bank account for a vehicle they have traded into a dealer, they should take immediate action,” urges Harquail. “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, car-buyers should understand this is a huge risk and contact OMVIC immediately. 

For car-buyers buying privately, do a lien check before turning over any money. A Used Vehicle Information Package (UVIP) available at ServiceOntario and CARFAX Canada (CarProof) report will provide you with lien information; however, CARFAX may provide additional information such as an accident history, if the vehicle has ever been reported stolen and whether the vehicle was ever registered in the U.S. or another province.

Contacting OMVIC

To learn more about the protections afforded to you under the Motor Vehicle Dealers Act and resources when purchasing from an OMVIC-registered dealer, visit omvic.ca. For advice and answers to all your car buying questions, reach out to OMVIC’s consumer support team at [email protected] or 1-800-943-6002. Plus, explore their free education services and webinars by emailing [email protected]. 

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