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OMVIC Blog: Car Buying Tips

Someone to lien on: OMVIC’s Compensation Fund may be there to help when the dealer falls short

Mar 17

Friday, March 17, 2023  RssIcon

If a motor vehicle dealer fails to pay off a lien on a trade-in vehicle, consumers may be compensated for any financial loss.

It’s always a relief to be finally rid of a debt – so imagine the shock of discovering that you’re still being held liable for a lien repayment despite having managed to sell or trade the car with that on it. This could be in addition to meeting the payments on another loan you’ve since taken out to finance a new car.

That’s a situation encountered by some of the car buyers who apply to the Compensation Fund administered by OMVIC, Ontario’s Motor Vehicle Sales Regulator. When a dealer sells a vehicle, it often takes on the lien, or debt, outstanding on the customer’s trade-in vehicle. Unfortunately, the dealer sometimes does not pay off that debt – despite the contractual obligation – so the customer’s financial institution continues to take the payments on it. As part of fraud prevention month, in this article, we will look at how this scenario plays out in practice, including when a buyer may be eligible for compensation, and how some practical steps can avoid the problem occurring in the first place.

Let’s say you still owe $10,000 on your current car. You decide to buy a new vehicle and take the current one to the dealership to trade it in. As part of that transaction, the dealer assumes $10,000 owing on the trade-in vehicle. You drive home in your new ride and begin to make the payments on it, but if the dealer doesn’t pay off the lien on your old vehicle, you’re now liable for two payments: one for the trade-in and another for your vehicle.

Often, the dealer will reimburse you for those payments on the vehicle that you no longer own. But if the dealer doesn’t reimburse you, you’re on the hook to meet the payments yourself. Regardless of whether the dealer is reimbursing the ongoing payments, it is already in the wrong.

“Consumers may get those reimbursed payments for six or seven months as if it’s standard practice,” says David Dailly, OMVIC’s director for the Compensation Fund, Discipline, and Appeals. “But it’s not normal to still be making payments on a vehicle that you traded in six months or a year ago.”

In some cases, an innocent accounting issue may be the cause of the problem. Perhaps the dealer simply forgot to submit the paperwork to pay off the lien. But if it happens for the second month in a row, that’s a red flag. It’s in your best interest to nip the problem in the bud. In the first instance that a lien payment hasn’t been paid, contact OMVIC’s consumer support team for guidance.

If you’ve suffered financial loss as the result of a dealer failing to pay out a lien, you may be eligible for reimbursement from OMVIC’s Compensation Fund. This is the number one reason why the fund pays out compensation, totaling over $1.5 million over the past seven years.

For a customer to be eligible for compensation due to an uncleared lien, OMVIC must have revoked the dealer’s license, or the dealer must have gone into bankruptcy. In all cases, OMVIC’s Compensation Fund team can help customers determine whether they are eligible and if so, talk them through the application process and gather the necessary supporting documentation. The team then compiles the claims and presents them to OMVIC’s the Fund’s Board of Trustees to review. If the application is approved, a compensation cheque will follow in a few weeks.

No one wants to incur a financial loss, even a temporary one. Non-payment of a loan, including placing a stop on loan payments at your financial institution, can also negatively affect your credit score. Dailly, therefore, recommends that vehicle buyers whose dealer agrees to take on an outstanding lien as part of the contract should proactively contact the previous loan provider after the deal is done, to ensure that the dealer has upheld its responsibilities. This will provide peace of mind if the loan has been cleared – or an early warning of trouble ahead if it hasn’t. Again, if you discover there’s a problem, a call to OMVIC’s consumer support team will provide advice on what to do next.

Scenarios like this highlight the importance of buying from an OMVIC-registered dealer – the Compensation Fund does not pay out on vehicles bought privately – and of always obtaining a vehicle history check such as CARFAX (including a lien check) before you buy. Make sure too, that all the terms of the sale are written explicitly in the contract as there is no cooling-off period on vehicle sales in Ontario. It’s much easier and less costly to avoid a problem altogether, rather than to try to put it right after the purchase, even when a dealer has behaved dishonestly.

If you’re looking for further advice, OMVIC is there to help consumers navigate the process of buying a new or used vehicle and ensure dealers comply with the law. Visit to access free car-buying resources to get you started and sign up for the quarterly newsletter, Consumer Line.

Contact OMVIC’s consumer support team at or 1-800-943-6002 for expert advice and answers to all your car-buying questions.

Follow OMVIC on social media to stay up to date on the latest news.

IG: @omvic_official
Twitter: @omvic_consumers
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This story was created by Content Works, Postmedia’s commercial content division, on behalf of OMVIC.