Legally, yes you can. But it would most likely be disastrous.
Buying an aircraft is more complex than many other high-end purchases for which you seek the help of professionals, such as buying a home, a yacht, or perhaps even a business. Here are the three main components that make up an aircraft closing, and the risks associated with them. You’ll see why it is prudent to rely on the experts when you are involved in an aircraft deal.
1. The Title Search
Aircraft title records are public, so you can search them yourself. You should know that the records are long and tedious due too extensive FAA rules. This presents a real risk of missing something, which can have serious results. If you don’t know what you’re doing, you could have a cloud on your title from problems such as unreleased liens. For more on clouded titles, see our blog on Clearing Clouded Aircraft Titles.
The importance of an accurate title search prior to a closing cannot be stressed enough. This will ensure that the proper documents are filed with the FAA.
2. Filing of Documents
Attempting to understand aircraft documents will create many “what if?” scenarios.
If you attempt to file closing documents yourself, what happens if they are in a format that’s not acceptable for recording at the FAA? They might get rejected, and here’s why. During the closing, if you hand over a large sum of money and receive documents, what transpires next? Do you fly to Oklahoma City to file the documents with the FAA? Can you mail them?
How do you know the seller didn’t give a bill of sale to another buyer? What if other documents for your purchased aircraft show up at the FAA before yours? You may find yourself in a legal ownership battle, such as the lawsuit we wrote about in last month’s blog and previously mentioned, Philko v. Shacket. The true story of Philko v. Shacket clearly demonstrates that serious problems can that occur with aircraft deals, in this case when two parties were claiming ownership.
In a sales transaction, a closing agent will handle the Bill of Sale FAA Form 8050-2, which is completed by the seller and given to the closing agent, who then must record it with the FAA. New owners will also submit the Application for Registration Form 8050-1 together with evidence of ownership and a registration fee.
3. Handling of Funds
How can you trust people involved in a sales transaction? You’re dealing with a large amount of money, which may come to you in the form of a check (is it good?) or a briefcase full of cash. Do you know how to correctly transfer funds between the buyer and seller? If a bank is involved, which is often the case, the seller’s loan must be paid off. For a glimpse into the importance of having a neutral third party handle escrow responsibilities at the closing, see our previous blog, Born in a Pool Hall.
Consider that you’re a party in a purchase with people you don’t know for a transaction that involves a substantial amount of money. And these people you don’t know have hired or entrusted other people you don’t know to assist them. It’s important to have reputable and trustworthy people representing you.
The Role of an Escrow Agent
Escrow Agents are obligated to handle aircraft closings according to the purchase agreement. There are important financial and legal components within this document. They will also handle all FAA document filings in a timely and accurate manner. Failure to promptly and accurately comply with FAA requirements will cause future problems for aircraft owners.
Here’s the agenda for the many moving parts involved in a standard aircraft closing.
- All parties to the transaction attend the closing call.
- Buyer can confirm when the aircraft is delivered.
- Buyer then authorizes the release of funds to the seller.
- Seller then releases the documents to be filed at the FAA. There is a certain order in which the documents should be filed.
- When banks are involved, they have authorizations for funds and filing of release documents, which they need to confirm as well.
Closing procedures must follow this set order, which is familiar to trained escrow agents. Smart buyers and sellers will insist on an escrow account to securely transfer the large amount of money that is customary in an aircraft sale. Without the security of a neutral third party managing the money transfer, everyone involved in the sale is at risk. Without an escrow account, buyers may find themselves with outstanding liens or ownership problems. Sellers who use an escrow account have an easier time collecting funds. Both parties will be confident that documents are completed and filed with the FAA as required.
Does all this leave you feeling a bit overwhelmed? You won’t be if you do not attempt to go it alone.