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Old 09-21-2008, 03:22 PM
 
516 posts, read 1,230,061 times
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I'm wondering if anyone has any experience or advice on this.

I am selling a car to a friend, but it's not a straight cash transaction - basically, she's going to make payments on it until the full agreed-on amount is paid.

What I want to know is, what is the best way to handle this? I don't want to be legally liable for the car if something happens. I know that when you finance a car, the buyer is the registered owner, but the finance company holds the pink and is listed as a lienholder. Can a private party do this, too?

If it makes any difference, this transaction is happening in California.
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Old 09-21-2008, 04:24 PM
 
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Private individuals can be recorded as lienholder here in Virginia.
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Old 09-21-2008, 05:55 PM
 
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The ONLY way to sell your car to your friend and be totally out of the picture re liability issues is to sell the car to her.

That way, it's titled and registered in her name only, and she is responsible for the insurance, upkeep, and any liability issues.

If you don't trust her to make the agreed upon payments, and there's lots of reasons why your shouldn't, then you'll need to have a promissory note document and file a lien on the car. You'll need to have a Bill of Sale transferring ownership to her, and the loan "note" stating the usual items of payment amounts, number of payments, terms, default provisions, requirement for insurance to protect you against loss of your equity (Comprehensive and Collision, UI, UM, liability, etc), and a UCC filing form for the note which you will file with the state. You should be able to obtain the blank forms from an office supply company which will meet your needs, and you'll have to pay to file the UCC form for the lien. A CA "pink slip" will be issued showing your friend as the owner of the vehicle and you as the lienholder. Don't forget that when the note is paid off, you have the responsibility to notify the state of that event so that the lien is released.

If you're really baffled by this process, then either visit with your attorney to do the paperwork or consult with a friendly car lot title clerk who might be willing to help you out.

But, under no circumstances, let the car go out of your possession without having done all the "sale" paperwork. That includes not letting your friend drive away under your insurance until the get their own in place. I've seen people get burned on this point when their friend drove down the street and got into an accident.

There's nothing tricky about this, dealers do it everyday all day long.
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Old 09-21-2008, 05:58 PM
 
Location: Apple Valley Calif
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Unlike selling a home, in which you make money on interest, selling a car that way is risky business. With a home, you can repossess it and resell. With a car, that doesn't work if it is wreaked or badly abused. It is also a good way to lose a friend, because it's common for the buyer to flake out on the debt. If they were a good risk, they would borrow the money and pay you off. It's really a losing proposition. If the "She" is a g/f, often the length of the contract lasts longer than the relationship, and then you are out of luck getting any more money. Make her sign her life away, so you have something for court..
If you do it, I would just leave it in my name and hold the pink slip. Make them provide you with proof of insurance, and check to make sure the policy remains in effect. They could drop the insurance after they take possession. In California the DMV will notify you if that happens, but that takes time. It could be too late by the time they notify you.
Don't like to be negative, but I have seen far too many of these car deals between friends turn out badly. Being a nice guy and doing a favor can bite you in the back side...
Good luck
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Old 09-21-2008, 06:00 PM
 
Location: Backwoods of Maine
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I sold a truck once to a neighbor. Not complicated at all. We just went to an attorney, had a note drawn up, neighbor had to keep it insured (this was before insurance was mandatory in RI), and it was all set.

I wouldn't do this if I had owed anything on the truck myself, though. I owned it free and clear. Used vehicles pass hands every day of the week, and sometimes money is still owed by the purchaser. Protect yourself - never loan money without an attorney drawing up a note.
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Old 09-21-2008, 06:27 PM
 
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Quote:
Originally Posted by Donn2390 View Post
If you do it, I would just leave it in my name and hold the pink slip. Make them provide you with proof of insurance, and check to make sure the policy remains in effect. They could drop the insurance after they take possession. In California the DMV will notify you if that happens, but that takes time. It could be too late by the time they notify you.
Good luck
Absolutely horrible advice, especially in CA where you will be held liable for any accident losses where the vehicle you OWN is involved. Even if the "registered" owner has insurance, you'll also be held liable for any losses. Even if you've "sold" it to your friend and she's making payments on it to you.

Even a minor parking lot fender bender with no injuries at the scene could turn into a huge legal/financial problem for you if one of the parties later claims physical injuries, pain and suffering, loss of income, etc. It's entirely possible that your "friend" might be one to sue you in this situation, too.

Don't count on CA notifying you of lapsed insurance unless you're the lienholder. They generally notify only the registered owner and the lienholders, not the car owner of record.

I'll repeat this ... I've seen friends get "burned" on cars in "friendly" deals.

Don't leave this risk to chance. Sell the car and let your friend be the responsible party from that point forward.
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Old 09-21-2008, 07:23 PM
 
Location: Emerald City
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#1 don't sell things to friends...especially on credit

#2 never owner carry, especially for friends
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Old 09-21-2008, 08:48 PM
 
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In CA it is straightforward regarding liability...

You would process the sale at the DMV. You would be listed is the legal owner and your friend as registered owner.

You also need to have a written agreement to specify the terms of the sale including being named as the legal owner on your friends liability insurance that also includes comprehensive, collision and theft for the vehicle sales price.

This way the buyer is responsible for all citations and accident liability and the insurance company will notify you should the insurance be cancelled or revoked.

Do not release the car until title is processed AND insurance obtained.

You also need to know that if the car should break-down or require extensive repairs... it is not unusual for buyers to walk away from it... essentially giving the car back.

Also, you may have to repossess the vehicle should your friend stop paying... so keep an extra set of keys.

Good Luck.
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Old 09-21-2008, 09:07 PM
 
Location: Apple Valley Calif
7,405 posts, read 11,982,778 times
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Quote:
Originally Posted by sunsprit View Post
Absolutely horrible advice, especially in CA where you will be held liable for any accident losses where the vehicle you OWN is involved. Even if the "registered" owner has insurance, you'll also be held liable for any losses. Even if you've "sold" it to your friend and she's making payments on it to you.

Even a minor parking lot fender bender with no injuries at the scene could turn into a huge legal/financial problem for you if one of the parties later claims physical injuries, pain and suffering, loss of income, etc. It's entirely possible that your "friend" might be one to sue you in this situation, too.

Don't count on CA notifying you of lapsed insurance unless you're the lienholder. They generally notify only the registered owner and the lienholders, not the car owner of record.

I'll repeat this ... I've seen friends get "burned" on cars in "friendly" deals.

Don't leave this risk to chance. Sell the car and let your friend be the responsible party from that point forward.
Not true That is why I said, first of all, make sure it's insured, you have no libility, unless it's not insured...
If the car is in your name, you ARE the lien holder, and you will be notified....
Second, and best of all, DON'T DO THE DEAL AT ALL.
that way, you are perfectly safe...
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Old 09-21-2008, 10:52 PM
 
8,322 posts, read 22,481,894 times
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Quote:
Originally Posted by Ultrarunner View Post
In CA it is straightforward regarding liability...

You would process the sale at the DMV. You would be listed is the legal owner and your friend as registered owner.

You also need to have a written agreement to specify the terms of the sale including being named as the legal owner on your friends liability insurance that also includes comprehensive, collision and theft for the vehicle sales price.

This way the buyer is responsible for all citations and accident liability and the insurance company will notify you should the insurance be cancelled or revoked.

Do not release the car until title is processed AND insurance obtained.

You also need to know that if the car should break-down or require extensive repairs... it is not unusual for buyers to walk away from it... essentially giving the car back.

Also, you may have to repossess the vehicle should your friend stop paying... so keep an extra set of keys.

Good Luck.
Let's try this one more time, OK, where the difference between being an "owner" and being a "lienholder" is significant, especially in CA:

If you are the legal owner on the title, and your friend is the registered owner, and you are also named as a loss payee on the insurance, that's exactly the liability situation I'm referring to that you don't want to be involved in if there's an accident with your car. What you're doing is setting up a situation where you're establishing a liability responsibility.

Suppose your friend insures the car for $50,000 medical payments and $1mil general liability ... and runs into another vehicle with 4 occupants in it, where all are injured. It's not beyond the realm of emergency medical and follow up care to spend well in excess of the medical coverage insurance you've got, especially if your friend is also injured in the accident and needs medical care. Right there you're looking at being sued for medical expenses.

Suppose, further, that the driver of the other vehicle is a high paid professional who's unable to work for awhile, if at all. You're going to be a party to a lawsuit, along with your friend, for well in excess of the $1mil liability coverage. Again, I've seen this happen where the injured driver was a dentist who claimed cognitive loss problems after an accident and could no longer work in his practice, ever. He sued the other driver for the loss of his practice/profession, and was awarded $millions. The insurance company paid off their covered amount and the folks I know are making payments on the balance of the award after having sold all of their assets except for the homestead exempted portion of their house. We know that the folks will never be able to pay off the balance, but the court has ordered them to make as good as possible on it for the rest of their lives as long as they have an income. Currently, it's $2,000 per month, which takes a big bite out of their cash flow; they can't buy a house again or save any money for their own retirement.

Quote:
Originally Posted by Donn2390 View Post
Not true That is why I said, first of all, make sure it's insured, you have no libility, unless it's not insured...
If the car is in your name, you ARE the lien holder, and you will be notified....
Second, and best of all, DON'T DO THE DEAL AT ALL.
that way, you are perfectly safe...
This is the biggest crock of all in this thread. Insurance coverage is limited to the amount that you or your friend purchase, it's doesn't absolve you of responsibility. If you purchase the legal minimums, or a suggested amount by the insurance agency, you're still liable for whatever lawsuit for medical or liability type claims may come through. These claims could legitimately be far in excess of your insurance coverage, and you would be personally liable.

So, again ... as long as your name is an owner on this vehicle, you're at risk.

The only way you can eliminate your personal financial risk for this vehicle in the possession/purchase by someone else it to SELL IT to the other person. You then protect your financial interest in being paid for the purchase by filing the promissory note with a UCC filing. If your promissory note is properly drawn up, then you can repo the car if needed by payment default through normal legal notice and process.

This all is the reason why a dealership or a finance company or other lender on a vehicle sale doesn't keep the vehicle in their name for ownership. They've sold the car and it's control and it's potental liability to someone else, and they legally retain a lien interest in the vehicle to protect their financial position.
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