legal corner
Protecting a Lien Holder’s Rights When a Bonded Title Is Applied For Dealer Question: I was just
notified by the state that someone has applied for a bonded title to a vehicle that has been on my skip list for two years. How do I protect my lien, and will a bonded title be superior to my lien? Response: We have seen an increase in recent months of dealers/lien holders receiving notice letters from the Vehicle Titles and Registration (VTR) division of the Texas Department of Motor Vehicles (TxDMV) regarding applications being filed for bonded titles to vehicles the lien holders have been trying to find.
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hile the issuance of a bonded title certificate will create an administrative presumption that the bonded title is superior to your lien in the state’s motor vehicle title system, most courts recognize that your prior, unsatisfied lien is still valid. However, the surety bond that is filed with the bonded title application (which must be issued by a licensed surety company) may offer a better and less costly remedy for the prior lien holder in recovering its loss than in fighting for possession of the collateral. The bonded title procedure was established by the legislature as a way of allowing a person to obtain a title certificate to a vehicle when the original certificate is unobtainable and the applicant is the apparent owner of the vehicle. The procedure presumes that the prior owner and lien holder can’t be found and
September 2020
T e x a s
D e a l e r
no longer have an interest in the vehicle. We’ve observed that this presumption is often incorrect. The bonded title legislation addressed a problem many vehicle owners had faced in obtaining title certificates to their vehicles after indebtedness was paid off. The problem was particularly acute when the banking and finance industries were faced with massive shutdowns and consolidations in the late 1980s. There has also been a persistent problem with other lien holders who go out of business or close down, and can’t be found when the time comes to get liens released. And, owners often lose title certificates that have been given by lien holders upon pay off, along with lien release on the certificate. If the lien holder, who properly fulfilled its obligations, is no longer in business when the owner needs the certificate, the bonded title process offers a solution. Before institution of the bonded title procedure, the methods for obtaining a title to a vehicle without having a title certificate were (1) apply for and obtain a certified
by Michael
Dunagan
W.
TIADA GENERAL COUNSEL
...the surety bond that is filed with the bonded title application (which must be issued by a licensed surety company) may offer a better and less costly remedy for the prior lien holder in recovering its loss than in fighting for possession of the collateral. copy of the original title, or (2) request a hearing from the county tax assessor to establish the right of ownership to the vehicle. The problem with the former procedure is that the owner or lien holder must sign the application and represent that the original title certificate was lost (although this requirement hasn’t stopped many thieves who have no qualms about forging lien holders’ names and 9
