Seller beware: What to do if there is an old lien on your airplane

When a reader advertised his Cessna 182 for sale in the classified advertising section of General Aviation News, he quickly found a buyer.

But while he was negotiating with that prospective buyer, he discovered there was a lien on his airplane — from 1969.

“I had no idea,” he says, noting the plane had been bought and sold about 10 times since 1969.

The prospective buyer backed out of the deal. Now the 182’s owner is trying to figure out how to resolve a 55-year-old problem.

This aircraft owner is certainly not the first — nor will he be the last — to discover this problem.

In fact, this has become an increasingly common problem, according to Todd Huvard, president of AircraftMerchants LLC, which provides aircraft sales and brokerage services.

Blame it on the FAA moving into the digital age.

“The fleet is old and the FAA records of old were based on poor microfiche-based scans,” he says. “Only now that the registry is fully digitized is the full extent of messy, stale liens being confronted by sellers and owners. It is usually possible to resolve issues, but it is certainly a pain to do so.”

What can you do to avoid a similar situation? Or, if it is happening to you, how can you resolve this problem?

First Things First

If you are interested in buying an aircraft, part of your due diligence is a full title search from a reputable title and escrow company, such as AIC Title Service or Aerospace Reports, advises Huvard.

“The title search should reveal if there are any liens, clouds, or encumbrances on the aircraft,” he notes.

Huvard explains that it is not the FAA that places a lien on an aircraft.

“Rather, the FAA Registry receives the lien — a chattel mortgage or aircraft security agreement — from the lender. Once that is received, it is examined and recorded and added to the aircraft registration history,” he explains.

To release the lien, an FAA 8050-41 Lien Release form is submitted and recorded by the FAA.

Like any government form, it is critical to get the right information on the release form.

“There are key items needed to fill out the 8050-41, including the name of the debtor, the name and address of the lien holder, the date it was submitted, the date it was recorded and, finally, the document reference number. These must be signed by an authorized officer with the correct title,” he explains.

But if you don’t have that information — and have no idea where to get it — don’t despair. But you do need to get to work.

That’s because even though you didn’t cause this problem, it’s up to you to resolve it, if you can.

“In many instances, there is a path to resolving stale liens,” Huvard says. “In some cases, it is not possible.”

And even while there is a statute of limitations on most of these “stale encumbrances,” Huvard notes that it varies from state to state and is subject to various laws on old debt.

“But that does not change most buyers or lenders wanting the releases recorded,” he adds.

The Path To A Clear Sale

If the lien is from a bank loan, the bank will usually be able to provide a new FAA 8050-41 lien release that can then be recorded at the FAA to clear the cloud on the title, he explains.

But what if the bank no longer exists?

Aircraft owners can approach the modern successor bank — the bank that acquired the previous bank — and they should be able to help look up what is needed.

“Some banks that have failed did not have successor institutions, but in most instance banks have been merged, bought, and sold over the decades,” he says.

He recommends starting at the FDIC’s Bankfind website to “sleuth out” whether a modern institution is in place. Then contact the new bank’s lien release department with the request to release the lien.

“They will research it and typically provide a lien release,” he says.

But be aware that you might hit a dead end — literally.

“In some cases, say where individuals or even a mechanics lien exists that was never released, the parties or companies are long since dead or no longer exist,” he says.

If you find yourself in this situation, you can either DIY or turn to a professional.

Title companies offer title insurance, which can be “fairly expensive,” Huvard says.

“Sometimes a seller will need to pay for the premium to assuage a buyer,” he says. “Or the buyer can take out the title coverage.”

The title companies also offer lien clearance services, which usually cost between $700 and $1,000, he adds.

However this is “no guarantee” that a lien can be cleared, Huvard warns.

If you’d prefer to do it yourself, you can track down what is needed — say a corrected bill of sale or a defunct bank lien — and figure out who needs to sign the release.

But if this is not done correctly, the FAA Registry will likely reject it, he says.

“So working with the title companies is a fire and forget solution, albeit a more costly way to do it,” he says.

Protect Yourself

Whether you are selling or buying, how can you protect yourself from having to deal with this headache?

“Working with an experienced and knowledgeable aircraft broker is one way,” Huvard recommends. “In our work we spend the money for a title search when we list an airplane. If there is an old lien we can begin pulling the thread on it right away to resolve it before the airplane is sold.”

“If a buyer is depending on a new loan, most banks will not fund it until the title encumbrances are resolved,” he adds.

And what if you don’t need a loan and decide to just pay cash to avoid dealing with the lien on the aircraft’s title?

“Buyers who shrug it off and close with cash will likely bear the weight of resolution when it comes time to sell,” he says. “Most informed buyers will want the title cleared regardless of any statute of limitations.”

For more information: AircraftMerchants.com