Fraud or Folley: Sold Boat With Clear Title

[Snax]

. . and didn't pay back the loan.

We purchased a boat on a secured loan in 2005. A few months later we received clear title for it. We kept the boat and continued to make our payments on time for a little over two years before we got into financial trouble and were forced to sell the boat. Having clear title in hand, we conveyed it directly to the buyer and used the proceeds to pay other debt. For 3 more years we continued to faithfully pay on the original loan in an effort to pay it down and keep our credit from tanking.

Jump to today: We stopped paying on the loan just 3 months ago and the lender is now seeking to repossess the boat. A little over a week ago, a repossessor knocked on our door seeking the vehicle and we politely advised him that the bank did not have the title, and likewise, no right to repossess. We followed up with a letter to their main office advising them to check with the lender on that point and have not heard from them since.

Now I have searched high and low on the internet for a concrete answer to the question of whether the lender really can repo the vehicle, and I have come up with some case law that suggests that at least in some states they might. In Oregon however, where we live, there is a section of the statutes that states:

". . the exclusive means of perfecting a security interest in a boat, boathouse or floating home covered by a certificate of title is by application for and notation of the security interest on the certificate of title in accordance with the provisions of ORS 830.720, 830.740 to 830.755, 830.785, 830.810, 830.850 and 830.855.

"

To me, this is pretty cut and dried. No title notation, no security interest, no repo rights - even though they do actually have a UCC Ch79 lien filed on the boat with the state. Title has transferred to the new owner without encumberance.

It is worth noting that Oregon limits the time period, which we are long past, within which a lender may perfect a lien on the title, so they can't go back and add it retroactively.

So the question is, are we looking at a sh--storm of trouble on this one with our pending Ch 7 filing, or is the bank simply SOL?

[BCA2009]

Nothing you can do but sit back and wait. How much is still outstanding on the loan?

Are you sure the bank filed the UCC form? It is wierd that they would file that and not file a lien against the title.

If they they file an AP, the fact that you made 2 years woth of payments after you sold it implies that you knew you were still obligated for the loan. But if the law is on your side, I guess it doesn't matter. The bank should be grateful that you made those payments.

Hopefully when they realize they don't have a lien on the title they will drop it.

Good Luck.

[Pandora]

ouch - would hate to be in your shoes.

To me, yes its fraud because you knowingly accepted a title that you knew wasnt clear and was obviously a mistake on the lenders behalf, then went and sold the boat knowing it wasnt really clear. So you passed on your headache to someone else that now believes they own the boat outright free and clear; and you kept the money they gave you. Doesnt matter that you continued to pay on the account for 2 more years after the fact, that can be viewed as a ride through or reaffirmation as the above poster stated. Bottom line - you sold a boat you didnt have the right to sell outright when it wasnt paid for and had no clear title.

What happens if they go after the purchaser of the boat? What type of position did you put an unsuspecting person in then? Its no different than if someone stole something and sold it to another person with a "title", if the police found it, they give it back to the rightful owner.

Come clean with the lawyer / lender.

[BCA2009]

ouch - would hate to be in your shoes.

To me, yes its fraud because you knowingly accepted a title that you knew wasnt clear and was obviously a mistake on the lenders behalf, then went and sold the boat knowing it wasnt really clear. So you passed on your headache to someone else that now believes they own the boat outright free and clear; and you kept the money they gave you. Doesnt matter that you continued to pay on the account for 2 more years after the fact, that can be viewed as a ride through or reaffirmation as the above poster stated. Bottom line - you sold a boat you didnt have the right to sell outright when it wasnt paid for and had no clear title.

What happens if they go after the purchaser of the boat? What type of position did you put an unsuspecting person in then? Its no different than if someone stole something and sold it to another person with a "title", if the police found it, they give it back to the rightful owner.

Come clean with the lawyer / lender.

I'm pretty sure it's totally a civil issue. If you sold a boat with a clear title the police won't get involved. It's up to the parties to litigate. So it is not the same as stealing a boat and selling it. I also don't think the bank can pursue the new owners. The bank has to prove that they had a secured interest in the boat. If they do that then they try to get damages. It was the banks fault the title lien wasn't perfected and new owners bought boat with a clear title in good faith (I assume).

The problem I see is that if the bank files an AP to prevent dischargability. I'd be more worried the circumstances are going to raise the trustee's attention to what other questionable things the OP has done.

I'm not casting stones, If I was desprate cash, maybe I would have done something similar, but looking at it after the fact, it certainly would raise questions about the credibility of the OP.

Have you hired an BK attorney? I think you need one.

Hopefully the amount owed is not enough for the bank to bother filing an AP.

I hope it all turns out OK.

[Pandora]

I'm pretty sure it's totally a civil issue. If you sold a boat with a clear title the police won't get involved. It's up to the parties to litigate. So it is not the same as stealing a boat and selling it. I also don't think the bank can pursue the new owners. The bank has to prove that they had a secured interest in the boat. If they do that then they try to get damages. It was the banks fault the title lien wasn't perfected and new owners bought boat with a clear title in good faith (I assume).

The problem I see is that if the bank files an AP to prevent dischargability. I'd be more worried the circumstances are going to raise the trustee's attention to what other questionable things the OP has done.

I'm not casting stones, If I was desprate cash, maybe I would have done something similar, but looking at it after the fact, it certainly would raise questions about the credibility of the OP.

Have you hired an BK attorney? I think you need one.

Hopefully the amount owed is not enough for the bank to bother filing an AP.

I hope it all turns out OK.

I agree - but what a sticky situation. Yeah, I knew it wasnt the same thing as stealing and re-selling ;) I was just using that as an example as in the possibility of pulling in the unsuspecting buyer of the item. With lenders these days.. who knows anymore what they'll do to get their items back ya know?

[MarkM]

The buyer who got clear title should probably be safe. If nothing was noted on the title, the problem is your lender's problem, not the buyer. To be sure the boat does not get repo'd by error, you probably need to notify the lender you sold the boat.

Which brings me to the second issue - what you did with the proceeds. The bank technically had a right to 100% of those proceeds up to the full amount of its loan. When you did not pay the bank those proceeds, you probably committed an act of "conversion" -- not fraud. Conversion is not a criminal law concept in most states. However, it is entirely likely that your debt to that lender is now non-dischargeable if you subsequently do file for bankruptcy.

Good luck ...

[BCA2009]

The buyer who got clear title should probably be safe. If nothing was noted on the title, the problem is your lender's problem, not the buyer. To be sure the boat does not get repo'd by error, you probably need to notify the lender you sold the boat.

Which brings me to the second issue - what you did with the proceeds. The bank technically had a right to 100% of those proceeds up to the full amount of its loan. When you did not pay the bank those proceeds, you probably committed an act of "conversion" -- not fraud. Conversion is not a criminal law concept in most states. However, it is entirely likely that your debt to that lender is now non-dischargeable if you subsequently do file for bankruptcy.

Good luck ...

Maybe, but I don't think so. He signed a prommisary note for XXXX of dollars. Just like if he had bought a big screen TV at Best Buy and and then sold the TV after he made 2 years of minumum payments. They have an interest in the asset, but if you no longer have the asset (sold it, gave it away, threw it away), their recourse is to sue for a judgement and then garnish your wages, back account, etc.

BK will discharge this liability, it happens everyday. It is not illegal to sell something that you have clear title to (or no title at all like a TV). That is the very reason banks put a lien on the title of expensive assets--To keep you from selling the collateral.

My understanding of an advesarial proceeding is to prove there was fraud when you borrowed the money with no intent of paying it back. That is not the case here, he had full intent of paying it back when he borrowed it.

Conversion is generally when you sell or use something that doesn't belong to you. The boat did belong to him.

I wouldn't want to be in the situation, but I think the debt is dischargable and the bank is out of luck.

[catleg]

I'm inclined to agree that
(a) buyer of the boat has good title
(b) bank loan is therefore unsecured
(c) bank is up sh*t creek
Shouldn't lend money if you're incapable of doing the paperwork right.

[Bell30656]

I'm not a lawyer... That said, I think it was the lender's fault for not perfecting the lien. Sure they can sue you but criminally? I'd talk with an attorney for a few minutes. It is worth it for the piece of mind.

Next time the repo man stops by say... "Boat? I don't own a boat."

[dscurlock]

I think you are ok if the bank takes no action, but could put you in a position that you do not want to be in if they do take action. Title or not, the property is not paid for...just because someone made a mistake, i do not think that entitles you do a free ride just becaus you think it is right because a mistake was made. They could place a lien on the boat, so the new owner would not be able to do anything with it, so not only could you be sued by the bank, but the buyer as well. the titile may have looked clean on the surface, but if they place a lien on it, then the title will not be clean.

The IRS is not forgiving when you cash one of their checks you do not deserve, even though you think so just because they made a mistake and sent it.

I hope the bank is more forgiving...

You knowingly sold a boat/w title that was not legally paid for.

This did happen to me when I bought a car years ago...I got the title
shortly after I got the car. I guess I was dumb enough to keep paying
for the car, even though I already had the title, stupid me

I am also wondering, even though the buyer has the title. since money is still owed
on the boat, how will that stop them from repo'ing the boat from the buyer?
he would be pissed to wake up one morning to find his boat gone, then find
out why...he would be filing a lawsuit against the seller for sure, after all,
a boat was sold that was not paid for...fraud, misrepresentation, legal fees....

You must like to gamble...throw those dice, and hope for the best....

[BCA2009]

Repo's companies can't just show up and take something without the paperwork to back it up. The new owner has a clear title or maybe even a lien from a different bank if the new owner finaced it.

It's a civil matter between the bank and the OP.

[Bell30656]

Maybe that's how repo companies work in your state but here? Bubba down at the bank hands his cousin, Jethro a piece of paper called a repo order. Jethro assumes that Bubba's bank has the title but he really doesn't care he just wants a couple Franklins for snatching it outta your driveway.

Buy here / Pay here repos are even than that... They just snatch 'em and worry aboutbthe paperwork when they sell it again.

[Rachel]

Sorry, but they can come after you for the boat, with or without the title in their name.

[Snax]

I'm not sure how a lien on it will affect it with clear title. Regardless, our attitude on it is that we will take our lumps when and if any come.

Anyway, things have changed in that we filed our ch7 on the 4th and had our 341 hearing today. That part of the interview went something like this:

T: Have you sold any vehicles in the last 4 years?
A: Yes, we sold a boat.

T: What did you do with the proceeds? Did you pay off a loan?
A: We used the money to pay other debts.

T: (Looks at us with an eyebrow raised.)
A: The bank failed to perfect the title.

T: I bet they weren't too happy about that.

We also mentioned that the bank had sought judgment and secured it by default just prior to the filing. So far, no attempt has been made to actually garnish, and at this point, none should per the stay and pending discharge. No creditors were there to object.

End of story about that.

[AlmostAmos]

Holy crap. THAT is an interesting read. I figured it would end up like this... ;-)