Most loans to consumers involve either cars or mortgages. With real estate, a lender will almost never lose its first priority lien position. When it comes to cars, however, lenders in many states making car loans, including Florida, face the possibility of losing their liens. How? In many states, a licensed company that tows or stores a car, or a shop that does repairs on a car, can place a lien on the car when not paid for its services, hold a lien sale and obtain a clear title and the lender’s interest in the vehicle is eliminated.
Some shops perform legitimate repairs on cars. Many shops, however, are unscrupulous and engage in what I call “lien sale piracy.” This problem has reached epidemic proportions in defrauding car lenders and dealers. For example, criminals fraudulently purchase, lease, or use straw buyers to acquire new cars with no intention of ever paying the loans. Once in their hands, cars are given to unscrupulous towing companies or repair shops who send out lien sale notices with the hope the lender will not respond in a timely manner. In some cases, notices are sent by certified mail in an empty envelope so the lender never finds out about a lien sale. In other cases, shops create fraudulent invoices for work that was never done.
Facts Indicating Lien Sale Fraud
Based on our experience, the following facts are indicators of fraud by shops and towing companies related to lien sales:
• Recent purchase or lease of the car (particularly new, expensive high-end
car), and a payment default.
• Not able to contact the customer.
• No accident information from the insurance company, customer or Carfax.
• Towing company or repair shop recently incorporated or not licensed.
• The telephone number for the towing company or shop on the lien sale notice is not answered, and messages are not returned. If calls are answered, excuses are made for not allowing an inspection of the car.
• The address where the shop is allegedly located or the lien sale is scheduled to take place is not a shop or commercial business location (e.g. a home or mailbox location).
Generally, repair shops and towing companies will not be cooperative when you try to contact them. Their goal, it seems, is to delay the lender taking any action before it is too late and their lien is eliminated.
Steps to Take to Prevent Lien Sale Fraud
Upon receipt of a lien sale notice containing the sale date, we recommend a lender immediately:
• Calendar the lien sale date
• Contact the customer (which in many cases you cannot find) to find out any information about the car, including whether the towing or repairs were authorized
• Contact the party asserting the lien and/or the noticing company (e.g.
Best Lien Services) and request (a) documentation of the work or services
(i.e. bills for towing, storage or repair estimate, repair invoices and signed authorizations for repairs), (b) a time to inspect the car, and (c) photos of the car (before and after the alleged repairs)
• In the event you do not obtain satisfactory documentation of repairs
and arrange an inspection within 2 to 3 days of contacting the shop regarding a
lien sale notice, escalate the case to management and your outside counsel
An important tip is to insist on confirmation in writing if advised the car was picked up by the customer, or told the lien sale will be postponed or canceled. Lenders must act quickly to protect their interest in a car when dealing with lien sales.
State Law Protections for Lenders related to Lien Sales
Florida law has several remedies a lender can use to prevent lien sale fraud. For example, a lender may obtain possession of a car from the shop before the lien sale by posting a bond with the Clerk of Court. The laws in other states vary, including limitations on towing and repair fees, and different notice requirements. Nevertheless, all the state laws include very strict time limits by which a lender can take action after receiving a towing or repair lien sale notice to prevent the sale of the car and loss of its lien. Once the lien sale takes place, a lender’s rights are very limited. Therefore, a lender’s best strategy is to recognize potential fraudulent situations as early as possible and set up procedures to guard against losing its interest in the car through a lien sale.
Do not be a victim of lien sale piracy – the clock is ticking toward the lien sale date and the date by which a lender can post a bond to stop the sale. In many cases, the shop intentionally will be unresponsive or drag its feet. The shop likely will lie, telling you the car has been picked up and the lien sale canceled. In the event you do not obtain satisfactory documentation of repairs and arrange an inspection within 2 to 3 days, you should escalate the case to management and your outside counsel to assist in stopping the lien sale and obtaining possession.