Selling an aircraft with a loan

Discussion in 'Flight Following' started by ZeroAviation, Jun 12, 2019.

  1. ZeroAviation

    ZeroAviation Filing Flight Plan

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    Sadly, the situation dictates that I sell my aircraft.

    It is a 72 Arrow, which I think is worth $85-90k~ and has a loan balance of about $40k

    What is the process of selling an aircraft with a loan? Can the escrow agent handle getting the loan paid and all of the related paperwork during the actual sale?

    Thanks
     
  2. AGLyme

    AGLyme Pre-Flight

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    A house has a mortgage... a plane, and other equipment, etc... has a "UCC-1" security interest lien instrument. When your plane is sold, the loan has to be paid off simultaneously. The Lender won't allow the plane to be sold unless the Lender is paid off - first.

    And when that occurs, the Lender will furnish to you a "UCC-3" which is a UCC-1 release of lien... meaning, the Lender has no more rights to your plane after you pay the Lender off. After the UCC-3 release is signed and "filed", the plane is now debt free and the plane can be sold to the Buyer with a clear title.

    So, get in touch with the Lender, tell him/her that you wish to sell the airplane, and you need them to arrange the paperwork for the security (lien) release (the UCC-3). Once the cash is in hand, you wire the Lender their $40,000, and the Lender sends the UCC-3 Lien release. No Buyer will touch the plane if there is a UCC-1 lien on the plane.
     
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  3. Blatham489

    Blatham489 Pre-takeoff checklist

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    Back to rented mules
    Any reputable escrow service should be able to coordinate that. Find some one before you go to market, connect them with your lender to get payoff information and then go to sell it. Easy peasy.
     
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  4. flyingron

    flyingron Touchdown! Greaser!

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  5. ZeroAviation

    ZeroAviation Filing Flight Plan

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    Thanks for the replies.

    Just to confirm, I won't need to come up with the funds to pay the aircraft off first correct? (Seems like the information is somewhat conflicting)
     
  6. ircphoenix

    ircphoenix En-Route

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    You don't have to find a different lending source to pay for the loan before you can sell it, if that's what you're asking.

    Essentially, if I wanted to buy your plane, I'd wire you the purchase price. With that money, you'd be responsible for paying off the bank immediately. The leftover cash would be yours.

    But since I'm a prudent buyer, I'd be hesitant to send you money, trusting you to pay off the loan and get the aircraft out from under the lien. So instead, I wire my money to the broker. The broker pays the bank, makes sure the bank releases the lien, and then they send the remainder of the payment to you.
     
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  7. Jeff Oslick

    Jeff Oslick En-Route

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    Buyers money goes to escrow agent, who sends the portion needed to pay the loan to the bank to pay off the loan. Escrow agent receives the lien release and the sale docs are completed to transfer ownership. This is the whole point to an escrow agent. Just like buying/selling a house with a mortgage.

    As a key part of this, the escrow agent will already have the signed bill of sale in hand from the seller before the money goes to pay off the loan.
     
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  8. bradg33

    bradg33 Cleared for Takeoff

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    Security interests in aircraft (and aircraft engines/props of a certain size) are perfected by filings with the FAA (or, in some cases, the International Registry). Releases have to be filed with the FAA. You don't typically have UCC-1s or UCC-3s in an aircraft transaction (absent unusual circumstances or a lender that doesn't know what they're doing).

    Also, the Lender doesn't really have to "allow" you to sell the airplane. You can certainly sell it without their permission or without their release, the lien will simply stay on the airplane.

    While I don't think escrow agents are necessary or useful for most small airplane transactions, where there's an existing lien that needs to be paid off it's going to be 10x easier to pay an escrow agent to deal with it.
     
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  9. ZeroAviation

    ZeroAviation Filing Flight Plan

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    Perfect!!!

    Thanks everyone!
     
  10. frfly172

    frfly172 Touchdown! Greaser! PoA Supporter

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    Go with a reputable escrow agent, well worth the cost.
     
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  11. iflyvfr

    iflyvfr Pattern Altitude

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    Just made sure you get indisputable proof that your escrow agent actually did what they were supposed to do with your funds. What's the term for when a title agent absconds with your mortgage funds? Escrow fraud happens and people who eventually get caught do real time, as well they should.
     
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  12. 455 Bravo Uniform

    455 Bravo Uniform Pattern Altitude PoA Supporter

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    Even if you had no loan, I’d use an escrow agent to hold the deposit for both sides. If one or the other party is in default or doesn’t go through with the deal for legit or illegitimate reasons, the agent refunds or transfers the deposit to the right party according to the written sale agreement/contract. They’ll handle to loan payoff too. If you use a an aircraft specific firm, they’ll do the title search and make sure the registration is transferred and filed. Well worth their fee (in my opinion).
     
  13. Unit74

    Unit74 Final Approach

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  14. midlifeflyer

    midlifeflyer Final Approach

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    Having represented banks in loan transactions, I guess I'll disagree with that last part. Many lenders will file UCC's to cover removables which may not be sufficiently covered by the Registry filing.
     
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  15. AGLyme

    AGLyme Pre-Flight

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    Lenders are well known to apply both belts and suspenders to things.
    Bottom line, you have received great advice here. Get an escrow agent to handle the money/lien release exchange once you sold the plane. Your escrow agent should pull up the registrations/lien filings and figure out who to send the $40k to in order to achieve a release and the accompanying lien record(s) that go with the lien. Note, I have paid banks off for equipment loans and oftentimes they do forget the release step... it's a pain to get the Lender to release at a later date so do it all in one transaction, which your Buyer will require anyway. Good luck on the sale.
     
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  16. midlifeflyer

    midlifeflyer Final Approach

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    Escrow agent: it's the same as a real estate closing. The primary purpose is to ensure everyone got what they bargained for. Passing out the money in exchange for properly prepared and executed paperwork, which the escrow agent records in the appropriate places.

    A simple process for the professionals who do it. A lot of guessing for the uninitiated who DIY.
     
  17. bradg33

    bradg33 Cleared for Takeoff

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    That's fair, though I think we agree the UCC filing does nothing to cover the airframe or the engine.
     
  18. JOhnH

    JOhnH Touchdown! Greaser! PoA Supporter

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    When looking for an escrow agent, should the OP be looking for an agent with specific aviation experience, or is any reputable escrow agent ok.
     
  19. bradg33

    bradg33 Cleared for Takeoff

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    There are a ton of aviation-specific escrow companies, many (most?) of which are based out of OKC. Most aircraft title companies are also escrow companies. Fee is usually a few hundred.
     
  20. AGLyme

    AGLyme Pre-Flight

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    I think we agree the UCC filing does nothing to cover the airframe or the engine.

    A UCC filing does impair assets (machinery, boats, planes, receivables, etc.), meaning, there will be a lien out there attached to the plane's serial number. And the title will most definitely be "clouded". If the Buyer of the plane financed the purchase with a Bank, the new Lender would search for UCC 1's and if there is one found registered, the loan will not be made until the UCC-1 (in this case a $40k loan) is satisfied, so the UCC process actually is effective.
     
  21. bradg33

    bradg33 Cleared for Takeoff

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    You cannot perfect a lien on an airframe or engine via UCC filing. The only way to perfect such a lien is via filing with the FAA. What Mark is referring to is using a UCC to perfect a lien on items that are removable from the aircraft that, as a result of being removable, might not be considered part of the airframe or engine. Think radios, "portable" air conditioners, or in the case of some aircraft cameras and camera mounts.

    While a UCC filed against the airframe/engine *might* cause a lender to hesitate on making a loan until a UCC termination is filed, that's pure belt-and-suspenders and not because it's legally effective.
     
  22. AGLyme

    AGLyme Pre-Flight

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    Here is a pretty good article on the subject...
    https://www.lexology.com/library/detail.aspx?g=74ab3d88-fea7-47f5-860a-d95f4f09cc0e

    I hope I made the article clickable...

    At the top, the writer (lawyer) speaks about UCC filings as a belt and suspender (and it is), near the bottom, the writer speaks about perfecting the lien... and you are correct, it is the only/best way to perfect a lien. I am saying that NO LENDER would brush off the UCC 1 and make a loan... no one.
     
    Last edited: Jun 13, 2019 at 7:38 PM
  23. midlifeflyer

    midlifeflyer Final Approach

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    We certainly can agree on that.

    But the point is, they are filed, and more often than not, they will mention the airplane as well as the removable, and a new lender would expect even an arguably invalid lien be released.
     
  24. Let'sgoflying!

    Let'sgoflying! Touchdown! Greaser! PoA Supporter

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    I second Unit74 ‘s suggestion of aerospacereports.
    They know this.
    You won’t have to burn up brain cells thinking about it.
    Your questions will be fully & accurately answered.
    It will be suddenly.... easy.
    They are fast and great at communicating.
    Used them twice in the past 12mo.
     
  25. Checkout_my_Six

    Checkout_my_Six Final Approach

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    easy....make sure your new purchaser is also getting a loan. The new lending institution will handle everything and make sure all prior liens are cleared. Then, if he likes, pay it off....
     
  26. flyingron

    flyingron Touchdown! Greaser!

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    Eh? You must have nicer lenders than I've come across. The lenders I dealt with expect you to find an escrow suitable to them. They'll just sit on the funds until you produce a lien-free bill of sale otherwise.
     
  27. NealRomeoGolf

    NealRomeoGolf Cleared for Takeoff

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  28. Checkout_my_Six

    Checkout_my_Six Final Approach

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    BoA did it all for me...including resolving a 20 year old lien.
     
  29. frgo0629

    frgo0629 Filing Flight Plan

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    Lender here. We never file UCC filings against aircraft. We record Security Agreements with the FAA and of course do a lien search prior. UCC searches would need to be done in the sellers name and residing state.
     
  30. strangebird

    strangebird Pre-takeoff checklist

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    yep use these guys smooth as silk deal
     
  31. ircphoenix

    ircphoenix En-Route

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    When? Must have been a while ago because they didn't do airplanes when I tried them three or four years ago.