Warning. This story requires the reader to hum and sing along. Readers may become better educated car-buyers, but, may have a song stuck in their head for a minimum of 12 hours.
Hmm hmm hmm hmm
Hmm hmm hmm hmm
Hmm hmm hmm hmm
Go ahead—sing it out loud. No one on the train is watching ;)
“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.
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.
When a lien isn't resolved
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 then selling those vehicles with liens.
“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 consumers’ new vehicles,” explained John Carmichael, OMVIC CEO and Registrar. “Unfortunately the dealers did not pay off the loans”. In the recent case of a Sault Ste. Marie dealership, the dealer received the monies required from the customers’ banks to pay for their new vehicles and payoff the loans on their trade-ins; but the dealer didn’t pay off the loans, instead trying to keep up the monthly payments on all the customers’ old loans which; and he sold those trade-ins to other customers, even though they had liens on them. “Financially, it was a house of cards. Legally, it breached numerous laws. And it left all the consumers at risk. If the dealer stopped making payments, which happened, the banks could demand the customers who had traded the vehicles in, to cough up the money. And the consumers who purchased the vehicles were at risk of having them repossessed because banks held liens on them.”
In each of these unusual cases, OMVIC took steps to revoke the dealerships’ licence and the consumers, because they bought from a registered dealer, were, or in the most recent case, should be, protected by the Motor Vehicle Dealers Compensation Fund, so “the actual consumer harm will be minimized”, which is fortunate.
What consumers need to know
But OMVIC wants car-buyers to know that there are early warning signs that indicate 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,” urged 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 this is a huge risk and contact OMVIC immediately.
While these types of occurrences are rare and the vast majority of transactions with registered dealers go well, it is worth noting that only when a consumer buys from a dealer, are they protected by OMVIC and the Compensation Fund. Should a consumer buy a vehicle privately and encounter problems, say for instance, an unpaid lien, the purchaser is pretty much on their own with little recourse other than the courts.
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. Both of these are invaluable tools, particularly when buying a vehicle privately!
OMVIC’s Complaints and Inquiries Team offers free assistance to consumers who may have an issue arising from a transaction with a registered dealer and can be reached at 1-800-943-6002 x3942. Because every now and then, you might just have a problem that they’ll understand, and we all need somebody to lean on.