Are New York Car Liens More Vulnerable To Theft?
Are New York car liens more vulnerable to fraud as a result of a new law (Chapter 493 of the Laws of 2012) that will take effect on June 17th ? At a recent presentation hosted by New York Bankruptcy and Collection Attorney Rudy Meola, whose analysis of this issue provided the impetus for this blog, he said the answer is yes.
For a few years now, dealers have been agitated by the length of time it takes some financial institutions to clear title on used cars that dealers want to resell. To address this problem, a new law will permit dealers who receive motor vehicles and arranges for the satisfaction of any security interest in these vehicles but for which a release of the security interest has not been issued to send proof to the Department of Motor Vehicles that a car lien has been satisfied. Dealers must first provide lien holders with two weeks notice. The Department will have only 15 days after receiving the dealer’s information to issue a clean certificate. The dealers can satisfy their requirement by providing the DMV with evidence that the security interest has been satisfied such as by submitting evidence of an electronic funds transfer, a cashiers check or “other evidence as determined to be satisfactory by the Commissioner” so long as it is accompanied by evidence that the amount delivered to the lien holder satisfied the outstanding lien. The strongest protection under the bill for credit unions is that car dealers who apply for the clean liens will be responsible for indemnifying the purchaser and lien holder of the vehicle.
So, if the law works as envisioned those institutions that quickly provide dealers with evidence that a car lien has been satisfied will not face any problems. After all, dealers would be responsible for them if they get a DMV release and there is still an outstanding lien on the property. Rudy’s concern is that this protection will not be sufficient to protect against crooks who forge the required dealer documentation and are able to turn around and sell stolen property with clear title. Under Rudy’s scenario, the indemnification protections would not kick in because a car dealer never requested DMV to issue a new title in the first place. For all intents and purposes, the credit union would have no realistic means of getting back any money for its unsatisfied car loan. By the way, it’s a good thing Rudy uses his powers for good instead of evil. He could cost us all a lot of money if he ever turns to the dark side.
As the law takes effect, we will have to keep an eye out to see if any of the worst case scenarios are realized. In the meantime, the law underscores the importance of quickly releasing liens on car loans that have been satisfied. I’ll be driving down to God’s country, aka Long Island, in my second-hand vehicle tomorrow on which one of our local credit unions holds the lien. That means I’ll be back on Tuesday with another blog.