Lien Issue

PilotRPI

PilotRPI

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PilotRPI
I have a title search that shows a lien on the plane with no amount shown from the 1960s. That bank was dissolved and liquidated in the 1980s. Curious where I go from there, or do I need to need to get this cleared due to age? The seller mentioned there is a 10 year statute of limitations in California, where the bank was. Would a new owner of the lien show if the lien were transferred? Seller says they tried to get the lien settled but couldn't since the bank was dissolved. Trying to get some guidance before I make the purchase. Thank you!
 
If you don't get him to deal with it, you'll have the same problem when you sell.

I can almost guarantee that there is a successor to the bank that held the lien who still has a valid claim here. Statute of limitations doesn't apply here. The lienholder doesn't have to proactively do anything to maintain it just wait until someone wants to sell and get their piece of the pie. There's no ten year limit in California with regard to this.

The proper way to get this fixed if you can't find the successor to the lienholder and you think it doesn't exist anymore is to start a quiet title action. This requires some publication and notification of the last knowns, etc... and you go court and convince the judge and he'll erase the lien.
 
flyingron said:
If you don't get him to deal with it, you'll have the same problem when you sell.

I can almost guarantee that there is a successor to the bank that held the lien who still has a valid claim here. Statute of limitations doesn't apply here. The lienholder doesn't have to proactively do anything to maintain it just wait until someone wants to sell and get their piece of the pie. There's no ten year limit in California with regard to this.

The proper way to get this fixed if you can't find the successor to the lienholder and you think it doesn't exist anymore is to start a quiet title action. This requires some publication and notification of the last knowns, etc... and you go court and convince the judge and he'll erase the lien.
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Thank you. Any idea what type of lawyer/service he would need to hire to do this, and how long it typically takes? Also, how would the owner of the lien know he is trying to to sell and take a share of the sales?
 
Common

Your involvement?
“Seller, fix this or no sale”

I would direct them to

Title Clearing | Aerospace Reports

Approximately 30% of all U.S. registered aircraft have some type of outstanding encumbrance attached to the title. Many of these encumbrances date back several years and are no longer in force, but because of improper termination or inaccurate structure, they still undermine the integrity of the...
www.aerospacereports.com www.aerospacereports.com
If they can’t fix it, I bet they can direct him.
 
Let'sgoflying! said:
Common

Your involvement?
“Seller, fix this or no sale”

I would direct them to

Title Clearing | Aerospace Reports

Approximately 30% of all U.S. registered aircraft have some type of outstanding encumbrance attached to the title. Many of these encumbrances date back several years and are no longer in force, but because of improper termination or inaccurate structure, they still undermine the integrity of the...
www.aerospacereports.com www.aerospacereports.com
If they can’t fix it, I bet they can direct him.
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Thank you. Supposedly aerospacereports worked on it a bit in the past and the seller was happy with what happened. Getting all the details before we move forward.
 
PilotRPI said:
Thank you. Any idea what type of lawyer/service he would need to hire to do this, and how long it typically takes? Also, how would the owner of the lien know he is trying to to sell and take a share of the sales?
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It might help a bit to get one who understands the FAA , but any commercial/banking lawyer will understand the lien and how to get rid of one, especially one that’s probably no longer valid. They will also know how to trace the bank ownership, and may be able to handle this without a lawsuit. The only reliable answer to “how long” in case a lawsuit is needed will be from a lawyer who practices in the county where the suit will be brought.

Has this been looked at by an aircraft/title company? (Edit: I see you mention one later.) The come across these fairly regularly and clear many of them without much difficulty. “Unable” for the seller might be “easy” for the experienced. When we lawyers get involved, it’s usually because it’s one the title company can’t handle informally.

I had a weird one of these some years back. The lending bank even used an improper name. Kinda funny in retrospect.
 
Two words - Title Insurance.

I too am in California, and I am unaware of any "statute if limitations" for a lien on real property. The whole purpose of the lien is to guarantee an eventual payment.

Very similar situation when I bought my plane - in California. There were actually two liens, one we got resoled as that bank was bought by Wells Fargo that had a record of the loan and we were able to get a release. The other still shows from 1978, but we couldn't resolve the second one without some conclusion on the first one as the second loan was a refinance of the first loan. The people that needed to sign this off were long gone.

I worked with AIC Title and had the seller pay for a title insurance policy, which AvSure had no problem underwriting. Talking to the escrow agent, she noted this is not an uncommon problem as many people get loans and when they are paid off they don't file the 8050-41 with the FAA.

Oh! Having to be able to get a title insurance policy on the plane with a contingency of the purchase.
 
I purchased my first plane back in 1993. There was an unresolved lien on the plane that was very old. It was probably just a situation where the owner failed to send the release of lien to the FAA. I pulled the records, but I obviously didn't notice or didn't care about the old lien. When I was selling the plane a few years later, the buyer's bank flagged this and would not do the deal until this lien was released. The original bank was long gone. I did some research and found a chain of two or three banks ending with the current successor bank - which was a larger bank, maybe Bank of America. Then I had to find an officer at that bank with the authority to release the lien. I finally got someone on the phone, explained the situation to her, and the bind that I was in. She actually understood and said this happens more often than you would think. I sent the form to her, she signed it right away and returned it. She wasn't worried at all about the two or three thousand dollars that the lien was for. It was sitting idle for well over 20 years at that point and was most likely paid a long time ago.
 
Ventucky Red said:
I too am in California, and I am unaware of any "statute if limitations" for a lien on real property.
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An airplane is not "real property." And while I don't know California law, having worked for a company which wrote banking software, I don't know of any state which gives security interests unlimited life (assuming this particular lien is a security interest to a bank and not for some other purpose). If nothing else, enforcement of the loan probably has a statute of limitations and, generally speaking, liens to not live beyond the obligation they secure.

That's why @PilotRPI needs a professional review of the record, and not a bunch of SGOTI.
 
I had the same problem with a PA-23 unable to clear a lien on the plane, title search company offered title insurance in case anyone ever showed up with a claim and they would pay it off, the selling price went down to the point I bought it. It was a 50 year old Bank lien little chance of anyone showing up but as said before when I sold the plane 15 years later it showed up again on buyer title search, most people do not want to take on that kind of problem so selling price was affected. And if you think the problem is just down here look North to Canada loans on property, aircraft a whole new ball game up their, so if you buy one up their be careful.
 
PilotRPI said:
Thank you. Supposedly aerospacereports worked on it a bit in the past and the seller was happy with what happened. Getting all the details before we move forward.
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if aerospace reports worked on this and cleared it - I would get their note on it. And more than likely I would be pretty comfortable since I know their work, and they are reputable.

That being said - it doesnt mean that there might be some road bumps to overcome when it came time for you to sell as the new buyer will have to be comfortable with something on the report that is supposedly now irrelevant. They'll have to be convinced of the same thing that you now are.
 
Anthem said:
f aerospace reports worked on this and cleared it - I would get their note on it. And more than likely I would be pretty comfortable since I know their work, and they are reputable.
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If Aerospace cleared it, it would not show up today as a problem. Yes, the lien would be on the record, but so would the release.
 
midlifeflyer said:
If Aerospace cleared it, it would not show up today as a problem. Yes, the lien would be on the record, but so would the release.
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its apparent they couldnt. My version of "cleared it" is that if they give a thumbs up that this particular lien record will not pose a problem for me as a new owner. As Im familiar and trust their judgement on it. Not as in they have actually "cleared it" - because if they had cleared it - this post from the OP wouldnt even be here.
 
Anthem said:
its apparent they couldnt. My version of "cleared it" is that if they give a thumbs up that this particular lien record will not pose a problem for me as a new owner. As Im familiar and trust their judgement on it. Not as in they have actually "cleared it" - because if they had cleared it - this post from the OP wouldnt even be here.
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Gotcha! But I wouldn't rely on "oh, it's OK" if the lien is still on record without a release. Heck, I can probably look at the record and say, "no problem for you while you own it" but unless it's off record, the issue is going to repeat itself with every future sale.

The "weird" one I mentioned earlier. From the time I looked at the documents I knew the lien was no longer valid. Easy call. But while my say-so without more might satisfy the risk tolerance of my client, I don't expect my client's future buyer to be satisfied with that, even if I put it in a formal opinion letter.
 
Ventucky Red said:
Two words - Title Insurance.

I too am in California, and I am unaware of any "statute if limitations" for a lien on real property. The whole purpose of the lien is to guarantee an eventual payment.

Very similar situation when I bought my plane - in California. There were actually two liens, one we got resoled as that bank was bought by Wells Fargo that had a record of the loan and we were able to get a release. The other still shows from 1978, but we couldn't resolve the second one without some conclusion on the first one as the second loan was a refinance of the first loan. The people that needed to sign this off were long gone.

I worked with AIC Title and had the seller pay for a title insurance policy, which AvSure had no problem underwriting. Talking to the escrow agent, she noted this is not an uncommon problem as many people get loans and when they are paid off they don't file the 8050-41 with the FAA.

Oh! Having to be able to get a title insurance policy on the plane with a contingency of the purchase.
Click to expand...
My experience with AIC is the same. All but one of my planes was a project plane and I've had some interesting title drama. They are really good at things like clearing clouded titles and insuring them if it's special. Shockingly fast and affordable too.

I've no experience with the other companies, but I've never ran into a person that didn't feel well served.
 
midlifeflyer said:
An airplane is not "real property." And while I don't know California law, having worked for a company which wrote banking software, I don't know of any state which gives security interests unlimited life (assuming this particular lien is a security interest to a bank and not for some other purpose). If nothing else, and, generally speaking, liens to not live beyond the obligation they secure.

That's why @PilotRPI needs a professional review of the record, and not a bunch of SGOTI.
Click to expand...

Yes, thank you for correcting me on this. Guess my information was bad.

jbarrass said:
My experience with AIC is the same. All but one of my planes was a project plane and I've had some interesting title drama. They are really good at things like clearing clouded titles and insuring them if it's special. Shockingly fast and affordable too.

I've no experience with the other companies, but I've never ran into a person that didn't feel well served.
Click to expand...

I haven't delt with the others, but if the need does come up, they will get my business again...
 
So aerospace was not able to clear the lien as there was no clear successor when the bank was dissolved with the state. A quiet title action is probably the way to clear it but is about $4k and at least two months. I'll have to look into title insurance. Not quite sure how that works or protects me. Most likely the loan was paid, the lien clearing paperwork wasn't filed, and company dissolved, but no guarantee of that. Anyone with title insurance experience love to hear more. Will call a lawyer tomorrow about quiet title actions.

Also learned from aerospace that if there is a lien certain types of insurance claims might not be able to be paid until resolved, another flag.
 
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PilotRPI said:
So aerospace was not able to clear the lien as there was no clear successor when the bank was dissolved with the state. A quiet title action is probably the way to clear it but is about $4k and at least two months. I'll have to look into title insurance. Not quite sure how that works or protects me. Most likely the loan was paid, the lien clearing paperwork wasn't filed, and company dissolved, but no guarantee of that. Anyone with title insurance experience love to hear more. Will call a lawyer tomorrow about quiet title actions.

Also learned from aerospace that if there is a lien certain types of insurance claims might not be able to be paid until resolved, another flag.
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If the plane is otherwise a good fit, perhaps the seller can reduce the price by the sum of the title insurance premium and the quiet title action (presumably about 5 AMUs off the top). You don't lose any money in exchange for assuming a small amount of risk (mitigated by the insurance), and the title eventually gets cleared.
 
PilotRPI said:
So aerospace was not able to clear the lien as there was no clear successor when the bank was dissolved with the state. A quiet title action is probably the way to clear it but is about $4k and at least two months. I'll have to look into title insurance. Not quite sure how that works or protects me. Most likely the loan was paid, the lien clearing paperwork wasn't filed, and company dissolved, but no guarantee of that. Anyone with title insurance experience love to hear more. Will call a lawyer tomorrow about quiet title actions.

Also learned from aerospace that if there is a lien certain types of insurance claims might not be able to be paid until resolved, another flag.
Click to expand...
One question I would definitely ask the lawyer is their opinion of the likelihood the lien is invalid. You may decide the risk is low enough to buy the airplane and pursue the quiet title action after the purchase. That solves the timing problem.

Title insurance buys you two things.
1. Protects you if the lienholder raises its ugly head and claims it’s valid. They pay the costs.
2. If you are financing the purchase, your lender will likely insist in it.

FWIW, the insurer is making the same risk analysis I described above. If they think it’s most likely valid, they won’t insure over it.
 
Dont title insurance companies require/expect a clear lien before offering said insurance ? Not sure person can get title insurance with a 3rd party lien - no matter how outdated or seemingly successor-less it is.
 
Anthem said:
Dont title insurance companies require/expect a clear lien before offering said insurance ? Not sure person can get title insurance with a 3rd party lien - no matter how outdated or seemingly successor-less it is.
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I was able to get a policy for my plane when I bought it and the lien is still there from the original loan to purchase the plane. The plane has had a few owners over the years and there haven't been any issues. My plane is protected from the day of purchase going back.

As a result of this thread, I did some research on the previous statement regarding a statute of limitations.. or should I say called the SIL who is "Loy-Yar.." Though this is not her expertise, she told me in CA there is a four year SOL period.. This means creditors have 4 years from the date of default to file a lawsuit to collect the debt. There are exceptions.. like mortgages, judgements, tax debt...
 
I had this issue with a lien from the 1940's. The seller used this company:

My lienholder went under and it was not bought by another financial institution hence the seller did a quiet title to remove the lien. The real kicker in my situation is that the lienholder actually repo'd the airplane and sold it in the 1940s. Decades later, the industry required a new form of lien-release paperwork and today the lien was considered valid. The issue with this is that if you have an accident, the insurance companies will cut a check to you and the lienholder. If the lienholder isn't around to sign the check then you can't cash it. I was told this by several insurance companies including Avemco.

https://fontanezlaw.com
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We just had a club aircraft ground loop and totaled on the insurance claim. The insurance company researched for liens and found one from the 1970s that was not properly "released". No release of lien filed with the FAA. The aircraft had been in the club 50yrs. The insurance company very quickly determined that it was not a valid lien and issued the check. YRMV
 
BillTIZ said:
We just had a club aircraft ground loop and totaled on the insurance claim. The insurance company researched for liens and found one from the 1970s that was not properly "released". No release of lien filed with the FAA. The aircraft had been in the club 50yrs. The insurance company very quickly determined that it was not a valid lien and issued the check. YRMV
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Not a surprise.
 
Anthem said:
Dont title insurance companies require/expect a clear lien before offering said insurance ? Not sure person can get title insurance with a 3rd party lien - no matter how outdated or seemingly successor-less it is.
Click to expand...
It's not common but it happens. It even happens with real estate title insurance. I've seen far worse situations than we are discussing here.

If the lienholder can be contacted for a payoff/release, the title company will insist on release unless the buyer (with the consent of the buyer's lender, if any) is willing to accept the obligation. In that case, the lien will be excepted from the policy.

The issue comes up with liens like the one being discussed here - the lienholder simply can't be found. In that case, the title insurer will analyze the risk and make a judgement call on the likelihood the lien is still enforceable. Remember, they are receiving professional advice on this, not SOGTI who have little useful knowledge. Even there, it's only going to happen if the title company is pretty certain and the coverage is only for the insureds, so the question will be looked at again when the next sale takes place, perhaps with a different result.
 
Couple of things.

First of all, there is no "federal lien" on aircraft; the FAA provides for recording evidence of the lien, but the lien itself is a creature of state law.

Next, I am not aware of any state in which there is not a statute of limitations for the enforcement of a lien interest, whether it be a mechanics lien interest or a purchase money lien interest. I'm happy to be educated on the subject.

I would have no qualms about buying an aircraft with a decades-old lien in favor of a no longer existing bank, perhaps requiring some measure of discount in the price, to accommodate the impact the stale and unenforceable lien might have on reselling it later.
 
SCCutler said:
Couple of things.

First of all, there is no "federal lien" on aircraft; the FAA provides for recording evidence of the lien, but the lien itself is a creature of state law.

Next, I am not aware of any state in which there is not a statute of limitations for the enforcement of a lien interest, whether it be a mechanics lien interest or a purchase money lien interest. I'm happy to be educated on the subject.

I would have no qualms about buying an aircraft with a decades-old lien in favor of a no longer existing bank, perhaps requiring some measure of discount in the price, to accommodate the impact the stale and unenforceable lien might have on reselling it later.
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Agree on all three, although "no longer existing" can be problematic. I wish I still had the information on my "favorite" one, but the defunct bank had gone through multiple mergers and asset transfers. So the bank was definitely defunct, but the holder of the loan was alive and well (and BIG).

And I would do one thing differently. I've seen sale or two almost go away because of an old lien. So, even though I am buying based on a due diligence assessment that the lien is likely invalid, I would take the steps to get it off-record. It might not make that much difference in a seller's market but is just they type of thing to screw up a sale in a market where the buyer can turn around and buy a similar airplane without the issue.

I also think the issue might be a wee bit different depending on whether the airplane is this one or that one.
1732125081687.png1732125272539.png
 
midlifeflyer said:
I also think the issue might be a wee bit different depending on whether the airplane is this one or that one.
View attachment 135415View attachment 135417
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I wonder whether it is more likely to spoil the deal on the cub, because a four-figure lien is much larger percentage of the value of the aircraft, and the prospect of spending that much on legal services to quiet title is more daunting compared to the value and total investment in the King Air (?);

On the other hand, because the cub is essentially a hobby piece ("toy") to the owner, who isn't likely as concerned with the total asset value when he might like to sell, compared to the larger aircraft that is more likely to have a financier involved that is concerned about having first lien position, making it a higher bar to clear there.

What's "The Rest of the Story?"
 
DJTorrente said:
I wonder whether it is more likely to spoil the deal on the cub, because a four-figure lien is much larger percentage of the value of the aircraft, and the prospect of spending that much on legal services to quiet title is more daunting compared to the value and total investment in the King Air (?);

On the other hand, because the cub is essentially a hobby piece ("toy") to the owner, who isn't likely as concerned with the total asset value when he might like to sell, compared to the larger aircraft that is more likely to have a financier involved that is concerned about having first lien position, making it a higher bar to clear there.

What's "The Rest of the Story?"
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You are right. The considerations are different in a number of respects.

I assume you are asking about the "rest of the story" from mine. I'll try to keep it short. It's probably more interesting to lawyers than anyone else.

It started out pretty normally. My client was selling his airplane and the title company found an old purchase loan lien. The weird twist was that, at the time the loan was made, the lending bank was planning a name change. They jumped the gun a bit and began doing loans under the new name (including the one on this airplane) before it was approved. As it turned out, it never operated legally under the name the loan was made. So the current bank management was unwilling to sign off.

The bank was now owned by a big bank, so I got in contact with their legal department. The lawyer I spoke to expressed the same concern as the branch. "If the bank name is incorrect, we can't be sure it's ours?" So I asked him for the name of a local lawyer who represented them so I could contact then so I could contact them about accepting service in our quiet title action. "Oh, hell, I sign it myself" was the bank lawyer's reply.

We were lucky that as much as we didn't want to spend the money for a lawsuit, neither did they.

Like I said, boring. I have better stories but they require a beer.
 
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