Can an auto lienholder still collect payment when the lien was mistakenly released?

UPDATED: Jul 12, 2023Fact Checked

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Jeffrey Johnson

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 12, 2023

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UPDATED: Jul 12, 2023Fact Checked

If you received title to your car and the lien was released, but the lender then went back and changed his mind, the lender cannot get back the released lien. However, this doesn’t mean he has no way to recover the money you owe him. They still have a promissory note that you signed when you took the loan in which you promised to pay back the debt — that note is still enforceable. Essentially, then, all the lender has done is turned the debt from secured debt (for which the car was collateral) into unsecured debt.

A lien is a legal claim against the unpaid value of some piece of property that prevents the sale or transfer of that property until the unpaid value is satisfied with the lien holder. One common place where liens are made and released on a regular basis are with car loans – the title is issued to the buyer, or held by the bank until the lien is released, and then the car can be sold or traded, but not before.

If a car lien holder released a lien due to some mistake made by the company or by the lien holder, the lien holder cannot go back and reapply the released lien, because the release of the lien was a legal process that should have been correctly performed by the lien holder. By giving you the title and removing the lien, the lien holder released his or her legal ability to collect on the investment via the lien process.

This means if you default on the loan now, the lender is going to have to sue you in order to collect the debt; he can’t just repossess the car. Of course, if he sues you and then you don’t pay the judgment, one method the court may use to get you to pay is to put a lien on property you own…like your car.

For the most part, released lien mistakes do not happen because these contracts are carefully scrutinized by the lien holders prior to the lien being released. In your case, you may wish to consult with a lawyer to find out what your options are and to ensure you handle this situation in the best way possible.

Case Studies: Mistakenly Released Auto Liens

Case Study 1: Released Lien Mistake

Sarah purchased a car and took out a loan from a lender. Once she repaid the loan, the lender mistakenly released the lien on the car, providing Sarah with the title. However, months later, the lender realizes the error and attempts to reinstate the lien to collect additional payments. Sarah consults with an attorney to understand her rights and the legal validity of the released lien.

Case Study 2: Lender Negligence

John had a car loan from a financial institution. After paying off the loan, the lender failed to properly release the lien on his car. As a result, John encounters difficulties selling or transferring the vehicle because of the unresolved lien. Frustrated, John seeks legal advice to hold the lender accountable for their negligence and to have the lien properly released.

Case Study 3: Unsecured Debt

Mark refinanced his car loan with a new lender, who mistakenly released the lien on the previous loan. While Mark no longer has a secured debt, the promissory note he signed with the original lender remains valid, converting the debt into unsecured debt. The original lender seeks legal recourse by filing a lawsuit against Mark to collect the outstanding amount.

Case Study 4: Legal Action

Lisa, a borrower, successfully repays her auto loan, and the lienholder releases the lien accordingly. However, the lienholder later discovers an error in the loan documents that resulted in the premature release of the lien. The lienholder initiates legal action against Lisa, arguing that the released lien was a mistake and that Lisa should still be responsible for the remaining payments.

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Jeffrey Johnson

Insurance Lawyer

Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

Insurance Lawyer

Editorial Guidelines: We are a free online resource for anyone interested in learning more about legal topics and insurance. Our goal is to be an objective, third-party resource for everything legal and insurance related. We update our site regularly, and all content is reviewed by experts.

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