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My secured lender clients sometimes contact me in desperation because they believe they cannot get their liens recorded on NC car titles. Their borrowers are not cooperating. Sometimes borrowers will fail to complete the necessary paperwork to obtain a car title in their names. Sometimes “clear” titles somehow get issued, without recordation of the lenders’ liens on them. When these things happen, lenders cannot get their liens properly recorded with the NC Department of Motor Vehicles. And, having an unrecorded lien on a titled vehicle is risky territory. Unlike real estate mortgages, an unrecorded lien on a titled vehicle can be defeated by sale to subsequent purchasers who gain ownership of the vehicle.
The problem arises when the collateral for the loan bears a title, like a car or truck. These are conditional sales. It does not occur when the collateral is non-titled “chattels” (like office equipment) or when the collateral is a piece of real property such as land.
When land is the collateral, lenders will not usually disburse loan proceeds until the mortgage or deed of trust is filed. When the collateral is non-titled chattels, the borrower’s cooperation is just not needed because:
New titles mean highway use taxes, title issuance fees, and troublesome lines at the Department of Motor Vehicles (DMV). Per NC lien law, the DMV will not mail new titles with liens recorded to borrowers. Instead, these titles go directly to the Lenders.
Sometimes, the Lender’s lien is somehow “left off” the NC DMV title application. As a result, the lender discovers that a “clear” title has been issued to the borrower, with no such lien recorded on it. Worse, the borrower fails or refuses to hand over the “clear” title or to sign the NC DMV Form MVR-6 Lien Recording Application or sign a new NC DMV Form MVR-1 Title Application.
However the omission occurred, Lenders can spend months trying to remedy the situation, hindered by encumbrances – with little to no recourse. Thankfully in most cases, there is another solution.
The solution lies in the state law NC General Statute Sec. 20-58(a)(2).
Here’s what you do:
If you have questions or would like more information on this topic, please contact attorney Frank Drake at 919.250.2109 or by email at firstname.lastname@example.org.
Frank Drake has more than 30 years of legal experience, with a concentration in bankruptcy and commercial litigation. Frank represents credit unions, banking and financial institutions, consumer and commercial lenders, and student loan agencies. Frank has taught classes on bankruptcy and commercial law for various Bankers Associations as well as the National Association of State-Chartered Credit Union Supervisors and various states’ Credit Union Leagues....LEARN MORE