What has happened here? More importantly, can this happen to you? This scenario describes what can occur if your aircraft becomes subject to a lien. And, yes, it can happen to you even if you?ve never been delinquent on a debt payment in your life.
A little preventative medicine, however, can go a long way toward keeping a chain off your propeller. All that?s required is a search of the aircraft ownership and title records (including tax lien records) before you make a final decision to purchase. The numbers aren?t astounding, but it?s surprising how many people fail to perform this simple task before investing thousands of dollars, only to find out later that someone else has a legal claim on the aircraft.
Aircraft can become subject to liens in a variety of ways, but a lien is always the result of someone or something (a corporation for example) not paying a debt on time. The delinquent debt may be a federal, state, or local tax bill, a gasoline or credit card bill, an amount of money due to a mechanic for work performed, or any number of other things.
The lien doesn?t have to result from a delinquent debt related to the aircraft itself. Any unpaid debt could potentially result in the debtor?s tangible assets being seized, including aircraft. All states and the federal government have laws that allow any personal or real property to be seized to satisfy the debts of the owner of the property. For example, aircraft, boats, jewelry, miscellaneous personal property, and even houses can be seized and sold at public auction to satisfy past taxes owed, or even things like unpaid child support.
Generally, a transfer of assets by the owner/debtor to avoid lien attachment and eventual sale is illegal and will be deemed fraudulent. In other words, a debtor cannot sell or give away all of his or her belongings to avoid a seizure and sale. If that sort of thing were allowed, delinquent debtors could theoretically transfer ownership of their assets to a close friend or relative, or set up a holding company to retain ownership of the assets. A debtor could then tell his creditors that there are no assets to seize and sell in satisfaction of their debts, and the creditor would be out of luck. Therefore, transfers to avoid debt collection have been illegal since the laws were first written.
So how does all this lien law affect you, the potential aircraft purchaser? Most liens must be recorded with some agency to put the public on notice that a creditor is claiming an interest in a particular piece of property. Once again, laws vary from state to state, and some states have better laws than others. Federal law is also unique in this regard. The recording of liens is required so that prospective purchasers have notice of someone?s, ostensibly a creditor?s, interest in the property. The intended buyer can thus avoid purchasing property that does not entirely belong to the seller, and also avoid the hassle and expense of an after-purchase seizure. In other words, it?s ?let the buyer beware? in action.
The law does provide protection for innocent purchasers who have no notice of a lien, or have no reason to suspect a lien may be in place. This requires creditors to jump through a few hoops so their liens on property are legally valid and their interests are protected. This is known as ?perfecting? a lien. If a creditor doesn?t place a lien on a piece of property exactly as the applicable law requires, the lien then is essentially non-existent in the eyes of the law, and the creditor will not be permitted to seize the property for sale.
For example, let?s say a state law requires that a personal property lien on an aircraft be advertised for three weeks in the county newspaper where the aircraft is located. Let?s then assume that the aircraft is moved to a different county just prior to the advertising (assuming the move is not fraudulent). That advertising will not then comply with the applicable law, and the lien will not be perfected. And the creditor cannot seize the aircraft for sale until the proper advertising is completed. The theory is that proper notice must be provided to potential purchasers. If notice is not provided, an innocent purchaser may acquire the aircraft, and the creditor will lose their right to that property.
The laws regarding personal property liens often do not make much sense, but they are designed to ensure that all potential purchasers have notice of a creditor?s interest in the property.
How can you find out if any liens have been filed against an aircraft you may want to purchase, or even if the purported seller has the right to sell the aircraft? Believe it or not, the FAA is here to help. Because of the inherent mobility of aircraft and the difficulty of keeping track of ownership and lien records, the FAA established the Aircraft Registry in Oklahoma City, so all title records could be kept in one place.
Several companies in Oklahoma City provide aircraft title and lien searches (as does the Aircraft Owners and Pilots Association), and several companies also provide searches for federal tax liens. These searches check for unreleased security agreements, liens, and the aircraft?s chain of former ownership. Make sure you have a federal tax lien search performed, because the IRS isn?t required to record its liens with the Aircraft Registry. If you are financing your aircraft, most financing companies always require a title search, and can help arrange for it, but cash purchasers should also perform the search.
Mechanics liens for delinquent payments to maintenance providers are also checked out during the title search. However, there have been instances where mechanics? liens have not been recorded. To avoid an after-purchase shock, it would be wise to review the aircraft?s maintenance records, and either ask the seller to show you the receipts for payment or call the maintenance shop yourself and ask if any payments are outstanding.
All this checking may seem like a lot of work, but when you consider the investment the average person makes in an aircraft, the few hours of research and the few dollars spent on a title search are well worth it. Although not many aircraft have been seized for old debts, enough have been to make it noteworthy.
