What does it mean if a car loan is charged off? And the lien on the title and how to get a title, well, charging it off is a bank loan operation, meaning that they don’t expect to get any more money or make any more payments for this car. It doesn’t mean that the loan goes away. It just means that in their books on their balance sheet, they have to now call that loan no longer an asset. If the bank loans $10,000 out of their account for somebody to buy a car, they can see that as an asset that they loaned themselves because they’re going to get that money back.
As soon as one alone doesn’t get payments for a year, six months, or 18 months, depending on the bank’s criteria, they have to charge it off. That means that they can’t call that an asset on their books. It’s still a valid loan. It’s still a valid lien against the car. And there’s still something that they can collect from the borrower. It just means that they can’t call it an asset. It doesn’t mean that the car is free and clear. It just means that it’s charged off of their books. It doesn’t change anything outside of their books.
All right, so what does that mean for the lien on the title? doesn’t make the lean go away. Even if you have a record of the charge at the DMV, it is not going to take it off the loan taken off the title because of that charge. What you can do, especially if you’re not the borrower who stopped making payments—if you’re a third party who innocently bought this car—is contact the bank and ask them what they will accept. Taking the lien off the title doesn’t make the loan go away. The borrower still has to pay for it and still get it collected, but if you’re an innocent third party who bought this car, you can get the lien off the title maybe for a nominal amount. The amounts we see sometimes are 10 or 15 cents on the dollar if it’s a $5,000 loan, and sometimes the bank will take you off the title for 500 bucks. Sometimes they won’t, but if you ask them and show them that you’re not related to the borrower, sometimes they will. It’s called “lean mitigation.”
You can read more information on our website, but how it works is described as a charge-off. It’s different from lean production. It’s not a clearing of the lane. It’s just taking it off the bank’s books as an asset. It’s really an accounting term more than it is a title or lien term. So charge it off even if you don’t get the loan off the car. The bank probably doesn’t want the car back. In fact, unless it’s one, two, or three years old, they don’t want the car; they want their money. So if you contact them on lien mitigation, you might be able to work out a deal.