By Christopher M. Seelen and Paul J. Mirr
August 16, 2012
On July 30, 2012, Wisconsin officially became a “title to lien holder” and an electronic title state. These changes were included in the most recent state budget bill and were approved by the Wisconsin Legislature in 2011. See Assembly Bill 40, 3129-3130 (2011). Currently, 38 other states are “title to lien holder” states.
Under this new law, Wisconsin Statute section 342.09(1)(b) now directs the Division of Motor Vehicles (DMV) to proceed as follows: “If there is a perfected security interest in a vehicle, the department shall deliver the certificate of title to the secured party having the primary perfected security interest in the vehicle.” According to a DMV press release, the new statutory language means that “any [vehicle] title with a lien (loan) listed on or after July 30, 2012 will be sent to the lien holder rather than the owner.”
An electronic version of the title will be sent to the lien holder unless they opt for a paper copy. The DMV claims that this change will reduce paperwork, increase convenience, and also prevent fraud and assist with consumer protection. A title held in electronic form will have the same effect as a paper title.
The DMV plans to implement these changes in phases. These changes ideally will lead the DMV toward a paperless environment. Below is a summary of how the changes will likely affect certain groups of people during the first implementation phase.
What Does This Mean for Lenders?
After July 30, 2012, lenders (lien holders) may choose to receive either electronic or paper titles from the DMV on any vehicle which they have a lien on. If they choose to receive an electronic version, they must work through a DMV-recognized third-party service provider. Current providers include VINtek and DecisionDynamics. Visit the DMV website for more information on recognized providers.
If the lender chooses to receive a paper title, the DMV will still send a paper title.
The DMV will send the title to the lien holder who has the primary perfected lien on the vehicle. Subsequent lien holders on the title will receive a Confirmation of Security Interest (Lien) Perfection (Form T084).
According to a DMV spokesperson, the new “title to lien holder” rule will not change or effect the rights of subsequent lien holders. The Confirmation of Security Interest (Lien) Perfection should be sufficient to protect subsequent lien holders’ interests in the event that the primary lien holder does not retain possession of the title until the primary lien is paid off. Additionally, subsequent lien holders are protected by Wisconsin Statute section 342.23(2), which states that “[a]ny owner or other person in possession of the owner’s certificate of title who fails to deliver the certificate of title to a secured party requesting it shall be liable to such secured party for any loss caused to the secured party thereby and may be required to forfeit not more than $200.”
Once a lender releases a lien, the DMV will issue an electronic or paper title to the owner, or the next lien holder listed on the title within 30 days of the release. By the end of 2012, the DMV hopes to implement procedures to make all lien releases electronic as well.
What does this mean for Dealers?
Selling Vehicles. After July 30, 2012, dealers may sell a vehicle on their lot if: (1) they have the proper odometer and title transfer documentation; (2) all liens are paid off on the vehicle; (3) they have verified that the lien holder has the title; and (4) they have access to the current DMV title record.
Dealers may electronically verify that a customer’s title is held by a lien holder, whether or not the title is in electronic or paper form.
Accepting Trades. After July 30, 2012, dealers may still take vehicles on trade without the customer having the actual paper title in hand. When the title to the vehicle is held by a lien holder, a secured power of attorney may be used. The DMV website states that more information will be published over time, and recommends checking its website frequently. A revised version of the MV2690 Power of Attorney Form will be released shortly.
Electronic Title Processing. The DMV website lists three options for dealers that do not currently process titles electronically: (1) use the DMV’s eMV11, its electronic titling and registration system; (2) use the CVR processing system; or (3) use the DealerTrack processing system. Contact information for all of these options is listed on the DMV’s website.
Trade-in and Resale. When a lien holder holds the title to a vehicle that was traded in, dealers may use the same system used to process titles into a new owner’s name to get access to the controlling electronic record. This may be viewed as the title when the title is held by a lien holder. Once the dealer verifies that a lien holder holds the title, they may use Form MV2690 to disclose mileage and transfer ownership from a customer into the dealer’s name.
According to the DMV website, if a dealer is wholesaling a vehicle, they should wait until a clear title is issued to them because a selling dealer is required by law to provide the paper title to the purchasing dealer within 14 days of sale. If the dealer is retailing a vehicle, it may use the electronic version of the title.
Following a Sale. During the first phase of the “title to lien holder” implementation, dealers should do the following after a sale: (1) make sure the current title record is still held by a lien holder; (2) if title is held by a lien holder, process the title transfer to the final purchaser using an electronic titling system (certifying the release of the lien); (2a) send the original power of attorney, a copy of the electronic record, and MV11 to the DMV; (3) if title is released by a lien holder, contact original seller who signed the power of attorney to the dealership and receive clear original title; and (3a) use the clear title to process the sale electronically. Note that the customer does not have to return to the dealership if a situation arises as described in (3).
What does this mean for Vehicle Owners?
The “title to lien holder” change only occurs prospectively after July 30, 2012. All people who held titles to their vehicles before July 30, 2012 may keep them, even if there are liens listed on the titles.
Under the new law, instead of receiving a title, owners of vehicles with liens will now receive a Confirmation of Ownership (Form T056, below) from the DMV.
If owners need their Wisconsin title before they pay off a lien, they must contact the lien holder directly.
Please feel free to contact Chris Seelen or Paul Mirr, the authors of this article, or any of the attorneys on the Banking & Financial Institutions Focus Team of Ruder Ware.
This document provides information of a general nature regarding legislative or other legal developments, and is based on the state of the law at the time of the original publication of this article. None of the information contained herein is intended as legal advice or opinion relative to specific matters, facts, situations, or issues, and additional facts and information or future developments may affect the subjects addressed. You should not act upon the information in this document without discussing your specific situation with legal counsel.
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