State Rules

• Most states do not allow title transfers when a lien exists. Some states, known as "title holding states," don't send a vehicle's title to the registered owner until the lien is satisfied, which means the seller won't be able to provide you with a title. To determine your state's rules for vehicles with recorded liens, call your state's motor vehicle department. If your state does allow title transfers while a lien exists, you should still require proof that the lien is satisfied before paying for the vehicle.
  
  

Financial Risk

• A lien holder signifies that an auto loan provider has financial interest in the vehicle; the seller does not own it outright. If you live in a state that allows title transfers while a recorded lien exists, the lien holder can easily find the vehicle by accessing motor vehicle records. Although you are not responsible for paying the recorded lien holder, the auto loan provider is within its right to collect, or repossess, the vehicle you purchased.
  
  

Paying off the Lien

• If the person you're purchasing from plans to pay off his loan with your sales price, then arrange to make your payment to the lien holder, not the seller. This way, you can ensure the loan is fully paid off, limiting your financial risk. Have your seller note her loan account to allow you to call to obtain the vehicle's payoff amount and to provide your payment. Ensure that your purchase price satisfies the vehicle's loan. If the seller owes more money than you're paying, arrange for her to pay the additional loan balance before you make your payment.
  
  

Lien Release

• Once the loan is satisfied, the lien holder will issue a lien release or lien-free title to your seller. He can then properly transfer ownership to you. If your seller claims to have paid off his loan, obtain an original lien release from the owner, not a copy. A lien release is an official letter from the lien holder that is printed on bank letterhead stating the loan is satisfied. Do not attempt to obtain the lien release on your own; most lenders will only send the release to the original borrower.