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How a Hidden Lien Could Cost You Your Car — and How to Avoid It

February 4, 2025
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Buying a vehicle in Ontario is a big investment, and understanding liens is crucial to protecting that investment. A lien can have serious financial consequences for buyers, especially if they purchase a vehicle privately. Here’s what you need to know about liens, how they impact vehicle ownership, and tips to avoid costly mistakes. 

What is a Lien on a Vehicle? 

A lien is a legal claim placed on a vehicle by a lender or creditor as security for an unpaid debt. If the previous owner took out a loan to finance the vehicle or used it as collateral for another debt, a lien may be registered against it. Until the debt is paid off, the creditor has a legal right to seize the vehicle if payments are missed. 

Buying from a Registered Dealer 

When you purchase a vehicle from a registered dealer in Ontario, you are protected by the Motor Vehicle Dealers Act (MVDA). Under this law, dealers are legally required to ensure that vehicles are free of liens. If you buy a vehicle from a registered dealer and later discover there is a lien on it, you have recourse. OMVIC’s Motor Vehicle Dealers Compensation Fund may help eligible consumers recover financial losses caused by the lien. 

What You Should Do: 

  • Ask for a Lien-Free Guarantee: Dealers must confirm there are no liens on the vehicle and provide this assurance in writing. 
  • Keep All Purchase Documents: Your bill of sale should clearly state that the vehicle is free of liens. 

Buying from a Private Seller 

Buying a vehicle privately is riskier because private sellers are not bound by the same laws as registered dealers. If you buy a vehicle with an outstanding lien from a private seller, you may be responsible for paying off the debt, and the lender could repossess the vehicle if the debt isn’t paid. 

What You Should Do: 

  • Conduct a Lien Search: Before you buy, run a lien search through ServiceOntario or use a service like Carfax Canada to check for liens on the vehicle. 
  • Get Written Proof of Loan Payoff: If the seller claims the loan is paid, ask for a written confirmation from the lender. 
  • Be Cautious of Suspicious Deals: If a deal seems too good to be true, it might be. Curbsiders (illegal sellers posing as private sellers) often sell vehicles with liens. 

What Happens If You Buy a Vehicle with a Lien? 

If you discover a lien after the purchase: 

  • From a Registered Dealer: Contact the dealer right away. If the issue isn’t resolved, file a complaint with OMVIC. The compensation fund may help eligible buyers recover their losses. 
  • From a Private Seller: You may be responsible for the debt. Contact the lender listed on the lien to discuss your options, but in many cases, you’ll have to pay the amount owing or risk losing the vehicle. 

Top Tips to Protect Yourself 

  1. Buy from a Registered Dealer: It offers the most protection, as dealers must sell vehicles free of liens. 
  1. Do a Lien Search Before Buying Privately: This small step could save you thousands of dollars. 
  1. Avoid Curbsiders: Illegal sellers often sell vehicles with hidden liens. Look for red flags like vague answers, reluctance to meet at a home address, or a lack of proper paperwork. 
  1. Get It in Writing: If a seller claims there are no liens, get it in writing. For registered dealers, the bill of sale serves as proof. 
  1. Know Your Rights: If you discover a lien after purchasing from a registered dealer, you may be eligible for compensation through OMVIC. 

Bottom Line 

A lien on a vehicle can become your problem if you’re not careful, especially when buying privately. The safest option is to purchase from a registered dealer, as they are required to sell lien-free vehicles. If you choose to buy privately, take steps to protect yourself by conducting a lien search and avoiding curbsiders. Remember, knowledge is your best protection. 

For more information on vehicle liens, consumer rights, and how to avoid scams, visit OMVIC.ca.