California Civil Code Section 3068(a) provides that a person who incurs costs for repair, labor, furnished supplies and materials or storage of a vehicle is entitled to a lien on the vehicle to compensate him/her for the costs incurred. The lien arises at the time a written statement of charges for completed work or services is presented to the registered owner, or 15 days after the work or services are completed, whichever occurs first. Id. Auto lenders must be vigilant that unscrupulous lienholders do not take advantage of California’s lien sale laws to obtain ownership of a vehicle without fully paying for it.
Section 3068 permits the lienholder to satisfy a lien by selling the vehicle through a lien sale process. For vehicles valued over $4,000, the lienholder must apply to the California Department of Motor Vehicles (“DMV”) for authorization to conduct the lien sale. Cal. Civ. Code § 3071. The DMV must then provide notice of the date of the lien sale to the registered owner and any lender by certified mail. Id. However, for vehicles valued at $4,000 or less, the lienholder still must apply to the DMV, but the lienholder (not the DMV) notifies the registered and legal owners of the lien sale date. Cal. Civ. Code § 3072.
Because the lienholder determines the value of the vehicle, an unscrupulous lienholder can arbitrarily value a vehicle at $4,000 or less, and sell the vehicle to him/herself without complying with Section 3072’s requirement that all interested parties, including the legal owner/auto lender, be notified before the sale occurs. Further, by undervaluing the vehicle, Section 3072(c)(2) permits the lien sale to be quickly set at least 31 days from the date of the alleged mailing of lien sale notice. In contrast, the process to obtain a lien sale date from the DMV for a vehicle valued over $4,000 is lengthier––it can take up to 40 days just to obtain authorization to proceed with providing notice to the interested parties to conduct the lien sale.
Although a legal owner/auto lender can oppose a lien sale by executing a Declaration of Opposition and returning the form to the DMV within 10 days of the date that the lien sale notice was mailed (Cal. Civ. Code §§ 3072(c)(4)(C); 3071(c)(3)), a legal owner/auto lender is often unable to comply with the 10-day deadline. Sections 3071(b)(2) and 3072(b) require that the Declaration of Opposition and lien sale notice be mailed to the legal owner/auto lender’s address of record with the DMV. However, the address of record is usually a post office box, instead of a physical street address. The 10-day deadline has often passed by the time the lien sale notice and Declaration of Opposition are routed to the appropriate department and processed by the legal owner/auto lender.
Also, despite Section 3068(c)(1)’s cap on lien fees that are incurred without the consent of the legal owner/auto lender (which are $1,250 for parking, storage or safekeeping and $1,500 for work and services (Universal C.I.T. Credit Corp. v. Rater, 214 Cal. App. 2d 493, 494 (1963); Brown v. J.E. French Co., 253 Cal. App. 2d Supp. 1079, 1080 (1967)), lienholders often claim excessive and inflated fees in the lien sale notice.
With a pending lien sale date, a legal owner/auto lender can be placed in the predicament of negotiating for the release of a hostage vehicle––sometimes by paying fees in excess of the statutory limits. If negotiations fail, the legal owner/auto lender must conduct a cost-benefit analysis to determine if the vehicle is worth pursuing. California Vehicle Code Section 10652.5(c) provides for limited recovery of attorneys’ fees, not to exceed $1,750, in an action by the legal owner to recover a motor vehicle allegedly being withheld by a person demanding excessive storage fees or charges. The limited attorneys’ fees provision, coupled with the costs of bringing suit to restore the legal owner/auto lender’s lien on the vehicle (and costs for provisional remedies such as an ex parte motion to stop the lien sale and application for writ of possession of the vehicle) can often mean that the cost of pursuing the vehicle will far exceed its value.
Auto lenders must be vigilant and react quickly when served with a notice of lien sale. They should be particularly concerned when the vehicle is valued at $4,000 or less (according to the lienholder), and should carefully examine any claimed fees. Failing to do so could result in loss of the vehicle before the auto lender realizes what happened.
For more information on California’s automobile lien sale laws in particular, or auto finance law in general, contact Scott J. Hyman at sjh@severson.com or An Le at al@severson.com.