Today's Trends in Credit Regulation

Electronic Lien Filing to Come to Michigan
By Angela Maynard Shovein

Electronic lien title, or ELT, refers to the method of exchanging vehicle, title, and lien information electronically with a state's Department of Motor Vehicles. The benefits of an electronic system are many: it allows creditors to check on lien status on vehicles; speeds up the processing time; reduces handling, storage, and mailing costs associated with paper titles; and helps fight fraud, as no paper titles or termination letters are generated that may be manipulated or forged.

Michigan has seen the light and is moving to electronic lien recording for all certificates of title (motor vehicles and boats). Senate Bill 918, passed at the end of September, provides the Michigan secretary of state with the authority to operate an electronic lien title system in lieu of the issuance and maintenance of paper documents. Currently, Michigan is a paper title state in which the vehicle owner holds the title - the most challenging type to manage. However, it will be a while until the system is up and running, as the secretary of state has until July 1, 2016, to implement the system, and compliance is not mandatory until October 1, 2016. The 2016 dates were a last-minute amendment to the legislation, which originally provided for implementation and mandatory use in 2015.

Persons who are not normally engaged in financing vehicle purchases will be permitted to continue to note liens through the paper-based system.

With the change to ELT, Michigan will no longer issue paper titles to the owners when there is a lien on the title. Instead, owners will be issued a "secured receipt" that can be used to transfer ownership of a vehicle. However, for paper titles that remain in the possession of a vehicle owner, the lienholder will still be required to provide a paper release directly to the vehicle owner. The paper-based system for dealers and finance companies will disappear once liens have been paid off that existed prior to the implementation date of the new system.

A number of other benefits accompany the new system. The legislation increases the number of days a lienholder has to release a lien to 14 days, and the lienholder no longer has to file a copy of the security instrument. In addition to increasing the number of days from 10 to 14 that a lienholder has to release a lien, the amendment deletes the provision "but not later than 30 days," which clears up the ambiguity about when this longer period was permitted. However, the amendment does not provide clarity to the long-standing question of whether the clock starts upon receipt of payment or upon clearing of the funds. Although not without risk, a good argument can be made that funds are not "received" until the payment clears.

The secretary of state is required to develop a system that will allow dealers to assign ownership of a vehicle without proof in the system that a prior lien has been satisfied. This system is necessary to address the practical issues presented by the change in timing in an electronic system. Today's paper-based system is not instantaneous and provides leeway for payoffs to occur. However, the dealer will be statutorily obligated to warrant that the title is free of all liens and to assume liability for the satisfaction of any existing liens that have not been paid off at the time ownership is transferred. Practically speaking, this is not a change in a dealer's obligation.

To help combat fraud, Michigan has increased the penalties for fraudulently indicating that no liens exist on a title or other fraudulent activities related to certificates of title. A person who tampers with a certificate of title now can be found guilty of a felony with penalties for a second offense of up to seven years in jail and a $7,000 fine, which increases to a maximum of 15 years in jail and a $15,000 fine for a third or subsequent offense. If a person is guilty of fraudulently indicating that no lien exists on a title or of forging a release letter, the person must additionally pay restitution to the lienholder in the amount of the outstanding lien on the vehicle.

Finally, the state has taken the opportunity to remove its obligation to annually publish a list of vehicle manufacturers' suggested base list prices. For vehicles registered according to list price, the price will now be the price shown on the manufacturer's label affixed to the vehicle.

Michigan is joining the trend to electronic lien filing. Now that procedures are in place and readily available to manage electronic filing, and more states have made electronic filing mandatory, it's time for the remaining states to follow. At this point, the benefits should outweigh any challenges.

Angela Maynard Shovein is a partner in the Ohio office of Hudson Cook, LLP. Angela can be reached at 216-221-8499 or by email at

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