Buying a Used Vehicle with Encumbrance

beyond2k on 15/01/2017 - 16:55

Hello ozbargain,

I intend to buy a used car still with encumbrance, just want to know the best way to go about it.

The seller needs to use the proceeds of the sale to pay off the debt so i'm thinking we do this:

  1. I write 2 bank cheques, one to his financier for the remaining debt, and another to him with the balance from the sale price.

  2. We both go to his financier and deposit the cheque.

  3. I take the car and we are on our merry ways.

I have written up a contract in case shit hits the fan and something goes wrong.

I ______________ agree to pay ______________ the sum of ____________ , of which ____________ will go to (financier) to pay off any remaining encumbrance on the vehicle, a (model and registration). The remaining balance of __________ will go to ____________ in exchange for the vehicle.

______________ will take full ownership of said encumbrance until 7 days after the date below, when (financier) lifts the encumbrance off the vehicle.

______________ will resume full ownership of the vehicle if said encumbrance is not lifted 7 days after payment is made to (financier).

Date: ________________

Buyer's Signature: ________________

Seller's Signature: ________________

Do you think the contract above will hold up?

Thanks.

Automotive

Comments

  • Nugs on 15/01/2017 - 16:58
    +3

    avoid it

  • brokenglish on 15/01/2017 - 17:23
    +1

    Really? There are so many cars being sold out there and you're trying to get one with this kind of risk?

    • beyond2k on 15/01/2017 - 17:34

      Yes I understand the risk involved but I've been searching for a car for over 6 months and this one ticks all the boxes at the right price.
      Which is why i'm asking whether the contract i've written will hold up if something does happen to go wrong.

      • chriise on 15/01/2017 - 17:51
        +4

        Not sure about your contract, but I don't think you'll find anyone on here that would advise you to purchase a car with outstanding finance. Just tell the seller to clear the encumbrance before you purchase.

        • magic8ballgag on 16/01/2017 - 09:23
          +1

          Clearly the seller would have already done that if they were able to.

      • kipps on 15/01/2017 - 19:56
        +1

        Asking whether the contract will "hold up" isn't really the right question. Even if it "holds up" you will merely have a damages claim against the seller for the amount of the encumbrance, which is worthless if the seller has no cash.

        You need to do a settlement whereby you get proof of the encumbrance being lifted in exchange for the payment.

        Do not part with the purchase price unless and until you get this proof.

        If you do, the encumbrance may not be removed, and the financier will still have a security interest over the vehicle.

  • altomic on 15/01/2017 - 17:50

    what sort make and model of car?

    • beyond2k on 15/01/2017 - 17:57

      2014 audi a3

      • [Deactivated] on 16/01/2017 - 09:17

        just buy a vw golf

  • StewBalls on 15/01/2017 - 18:04
    +14

    I've done this in the past, since you're fully aware of the encumbrance it's not as big an issue as you might think.

    Just talk to the finance company & they will sort the documentation out for you, and tell you how best to disburse the monies…there's heaps of precedent & plenty of standard forms to get it done without your own bush lawyering. ;)

  • bion83 on 15/01/2017 - 18:15

    If you were taking car loan your bank would donall this paperwork for you….just saying

  • bargainbargain on 15/01/2017 - 20:08

    Its probably better to have a clear date of when you become the owner.

    Is it probably safer to ask the loan company to give you the total outstanding amount on say a date 1 week later and then pay the seller the price net of that loan amount and as you note give the cheque to loan company for that amount.

    • mskeggs on 15/01/2017 - 22:47

      I lost an extra month of finance payment due to delays in this sort of circumstance, so be very clear on who owes what to whom on the transaction date, to avoid any surprises.
      You won't be in a position to chase up the difference, so you need to get it right ahead of time.

  • Daabido on 15/01/2017 - 20:14
    +3

    This happens all the time. Take your cue from the finance company, not the seller.

  • vtecdohc on 16/01/2017 - 00:05

    If you decide to go ahead with the purchase, on the contract make sure it has the VIN number of the car on it just incase.

  • 2ndeffort on 16/01/2017 - 00:24
    +2

    I have sold a car like this before. I've had cars on Novated Leases and sold them at the end of the lease. The person selling the car can call their financier and get a letter or something writing that says that the finance company will release their interest in the car once the amount of the finance has been paid out. I normally do this when I sell lease cars to avoid the confusion you are now having. When I payout the financier I normally send a copy of the release leter to the guy that bought the car.

    Whether you pay the finance company the full amount and they reimburse whatever the difference is to the guy selling the car or whether you cut 2 cheques or whether you trust the seller to use the proceeds of the sale to payout the remaining finance is up to you. This is pretty normal and nothing that would surprise them, this must happen many times a day for them I would think.

  • [Deactivated] on 16/01/2017 - 09:26

    You don't need to trust them, or nanny them, just use the normal channels, or is there something you are not telling us?

  • theHMASfriendship on 16/01/2017 - 09:34
    +3

    His finance company should be able to provided him with a pay out quotation, which you can then go and pay them directly. They'll provide a letter releasing the interest in the vehicle and then you pay him the remaining.

    I sold an encumbered vehicle this way, it's simple enough. Just get him to agree to the amount of money you will be giving him and be giving the finance company, and give him the copy of the letter saying the financed amount had been paid off.

    Note it may take a little bit of time before the REVS check comes up saying the vehicle is unencumbered, as long as you have the letter from the finance company all is well.

  • pjcook on 16/01/2017 - 09:55
    +1

    Deal directly with the financier and get a certificate from them.

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