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Car lien shouldn't come as a surprise

By

To Her Credit
To Her Credit, Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also wrote for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs. See her website SallyHerigstad.com for more personal finance tips and free budgeting worksheets.
Ask Sally a question, or read her previous answers in the To Her Credit archive

Question Dear Sally,
My friend loaned me $5,000 for an attorney. I never signed any contract; it was just a verbal agreement. I have been making payments to him monthly.

I recently loaned my car to a family member. They were hit by a drunk driver, and my car was a total loss. To my surprise, I found out through the insurance company that the friend that loaned me the $5,000 had put a lien against my car without my knowledge. Is this legal for him to do without my agreement? I never signed any papers or anything about this. I live in Florida.

He has since signed the car back to me. However, I found a paper about transferring the lien to my new car. What should I do in this situation? Please help. -- Tami

Answer

Dear Tami,
You should not have a lien on your car that you do not know about. There are three basic types of liens you are likely to have on your car. The first and most common is a lien from financing a car when you purchase it, or if you refinance it at a later date. The second type is a judgment lien. If someone took you to court for an unpaid debt and won, they could place a lien on your real estate, car or other valuables. The third type is a mechanic’s lien, which may be placed when someone provides services or works on your car and doesn’t receive payment.

In your case, the most plausible explanation is that your friend placed a judgment lien on your car.

Linda A. Kerns, a lawyer practicing in Pennsylvania and New Jersey, says, “Generally speaking, and this is not state specific, in order to get a lien against someone's property, you would need to sue them and then obtain a judgment. The judgment would then be filed with the county clerk or possibly the Secretary of State.” When you try to sell the property and pass the title to someone else, you must pay the judgment before you can pass over the title.

Your friend could sue whether or not there was a written contract, Kerns says, “He could have filed a lawsuit and alleged an oral contract. He would have been required to serve her with the lawsuit so she would have notice.”  In some jurisdictions, you are hand-delivered a notice. However, according to Kerns, some jurisdictions allow you to be served by certified mail.

It would be very difficult for your friend to do all this without your knowledge. Kerns has known people to sometimes ignore certified mail, however, perhaps thinking no news is good news. She says, “If he was able to go to the court and prove that he served her, and then she did not appear, he probably won a default judgment against her.”

The first thing you should do is check your credit report. “Any judgments against a person are usually reported to credit reporting agencies,” says Kerns. It’s important to know exactly who has a lien, for how much, and against what property.

The next thing you should do in this situation is talk to your friend. It’s a huge favor for someone to lend $5,000. Not many friends would do that.  If you do not want a lien on your new car, ask if you can come to some kind of agreement, such as stepped-up payments or a lump-sum settlement. Get any agreements and receipts for cash in writing. Kerns recommends you get an attorney to make sure it is all done correctly and you do not have any more surprise liens on your car or other property.

See related: How an unpaid debt affects selling your property

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Published: March 18, 2016


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Updated: 12-06-2016


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