Friday, May 6, 2011

Claim: Minnesota Dealer's Alleged Fraud Contributed to Bank Failure

The Minnesota Star Tribune is reporting a story about a car dealer charged with theft and fraud. From the article:

A former Stillwater car dealer is scheduled to go on trial later this month, charged with swindling a 119-year-old community bank that its president said helped push it into failure.

Apparently, an inventory of the vehicles was done in March 2008, but a follow-up inventory in July 2008 revealed 80 of the 109 vehicles with bank liens were missing. A February 2009 article in the Stillwater Gazette also notes:

The criminal complaint claims [the dealer] opened accounts at other banks to hide evidence of his transactions from Jennings. Furthermore, it accuses him of telling buyers that the vehicles were free from any and all security interests, making no mention of his arrangements with Jennings State Bank.

The question raised for me by this situation is: What happened to the bank's liens on these vehicles? It is not sufficient for someone to claim no security interest exists - the Minnesota Department of Public Safety (DPS) should still have a record of the lien, allowing the failed bank or its successor to repossess the vehicles. According to the DPS website, "To remove a lien from a title, the vehicle title must be submitted with the Lien Notification card from the lien holder, properly signed by the lender or with a notarized Notification of Lien Release (PS2017) signed by the lender." So what happened?

I spoke with the MN DPS today to get clarification on their policy. They did confirm that a lender can repossess a vehicle even if it has been sold, even if a dealer represents the vehicle as free from security interests.

The only way for a dealer to subvert a lender's lien is to fail to file the lien with the DPS or to falsify release documents. Banks are able to track that their lien is established by watching for the lien notification card to arrive from the DPS. Falsifying lien documents requires following the process listed above, not a simple action.

In summary, this represents real situations that happen without a good system of tracking liens and titles. Premier eTitleLien™ and state ELT programs provide several methods for preventing fraud:

  • Premier eTitleLien™ tracks the progress of a lien from loan origination through lien notification from the DMV, alerting users when a lien has not been perfected.
  • Several states include provisions for lienholders preventing the release of a lien through non-electronic means.
  • Premier eTitleLien™ integrates with state title inquiry services, providing status updates on vehicle titles, allowing lenders to verify their lien status.
  • Most state ELT programs speed up the process of recording and releasing liens.
  • Other fraud prevention measures are also built into Premier eTitleLien™.

For more information about Decision Dynamics, Inc. or Premier eTitleLien™, visit

Image above is an architect's rendering of the Stillwater branch of Jennings State Bank.