NEW YORK - Auto lenders stand to benefit from two changes to New York state law that took effect this fall. The issues involved are important in other states, too.
One New York law, called the Unrecorded Lien Bill, protects the rights of the lender that financed a vehicle, even if there was a mistake in the paperwork and the lien was not properly recorded on the title. That bill also protects dealers.
The second change, called the Garageman's Notice Bill, requires tow-in lots to notify a lienholder within 20 days as to who has the car and where, and that the car is racking up storage charges. The bill, which took effect Oct. 8, applies only to cars that are towed at the direction of the police.
The problem of an unrecorded lien most often crops up when the borrower declares bankruptcy, said Rudolph Meola, an attorney in Albany who represents several auto lenders. Meola said he lobbied for both bills. The Unrecorded Lien Bill took effect Sept. 7, he said. It applies to all existing liens, as well as new ones.
Under the old law, if there was an unrecorded lien, a bankruptcy trustee could seize the vehicle and direct it to be sold, even if the lender had a legitimate claim on the title.
'The problem is extremely prevalent,' Meola said. Lenders have the same problem in other states, too, he said.
'Between the dealer, the customer who provides the information, the lender and the Department of Motor Vehicles, it is happening a lot,' Meola said.
He said he personally handles 40 or 50 unrecorded lien cases a year for clients such as General Motors Acceptance Corp., Ford Motor Credit Co., Key Bank, Chase Manhattan Auto Finance Corp. and G.E. Capital Corp.
'What happens is, the customer (whose car has been seized) stops paying,' Meola said. 'That's the first notice the lenders have that something is wrong.'
Unrecorded liens also are an important issue for New York dealers, who usually fill out all of the paperwork for registering a new car and recording the lien on the title, with the state Department of Motor Vehicles. The potential problem for dealers is that under the old law, if the dealer were to blame for failing to record the lien, the lender had recourse to demand that the dealer pay off the loan.
Meola said unrecorded liens also are a problem in other states where dealers commonly file the paperwork.
'The consequences for a single omission could be pretty significant,' said Stuart Rosenthal, general counsel for the Greater New York Automobile Dealers Association in Whitestone, N.Y.
'Say the loan was for $35,000, and the customer only made three payments and then stopped. The lender could come back to the dealer for the balance on the loan.'
The dealer association also supported the Unrecorded Lien Bill, Rosenthal said. He said that, in his opinion, unrecorded liens are rare.
The other new law, the Garageman's Notice Bill, is an obvious benefit for auto lenders.
Previously, tow-in lots were required to notify customers within five days where their cars were and how to get them back. But there was no requirement to notify the lienholder about the vehicle's whereabouts until it was about to be sold, Meola said.
Meanwhile, storage fees can continue to pile up.
'Storage fees, in some cases, can exceed the value of the vehicle,' Meola said. 'I handled a case recently where there was a Ford Mustang with $16,000 (in fees) on it, and the Mustang was only worth $8,000.'