When the purchaser of an aircraft decides to buy, an aircraft title search is performed to check the status of the title. Unfortunately, a search of the FAA records often reveals that the title to the aircraft is not clear — in other words, it’s “clouded.” Below, we break down what exactly this means, ways to avoid it, and how to resolve it.
What issues could “cloud” a title?
Any break in the chain of aircraft title or lien or cloud on an aircraft title can cause difficulties for owners when they try to buy, sell, or register their airplane. Real-life examples include divorce decrees, bankruptcy court orders, aircraft mechanic liens dating back to the 1970s, and even aircraft security interests from 1952.
Below are the most common aircraft title issues:
- Unreleased liens / security agreements
Many of these liens can be 20+ years old, which means locating the parties involved can be difficult — resulting in a cloud that is difficult to remove. Liens are non-consensual and are generally placed on the aircraft title without the consent of the owner. These can be from mechanics who believe they are owed money for services rendered, or from taxing authorities who claim to be owed money for unpaid taxes. Whatever the motive, these liens can be filed against an aircraft at any time by anyone, wreaking havoc on a title even if they are not in recordable format.
Unlike non-consensual liens, mortgages and security agreements are consensual and occur when the buyer of the aircraft borrowed money from the bank to buy his or her plane. In this case, these liens are left outstanding because the lending institution changed hands, went out of business, or was bought by another bank.
- Document errors
These can be as minor as a missing or incorrect signature or inconsistent owner information on a bill of sale.
- Break in ownership
This could be caused by a missing bill of sale or missing signature of one of the previous owners of the plane, or an incorrect title in the signature line of a bill of sale anywhere in the chain of title.
READ MORE: Clearing Clouded Aircraft Titles
Why are “clean” titles so important?
If these issues are overlooked, new owners essentially inherit what the previous owner did not handle. The result? Your closing will come to a screeching halt as buyers are reluctant to buy and lenders are often hesitant to finance an aircraft without a clear title. After all, how do you deal with an unreleased lien dating back to 1975?
What if a clouded title can’t be cleared?
Clearing a title can take time, energy, and resources. Here at Wright Brothers, we have the know-how and industry expertise to do just this. Occasionally, however, issues cannot be solved in the ordinary course of business. For example, an individual lien claimant may be deceased, but his/her lien claim remains of record. Other times, a bank that claimed a security interest has gone out of business or merged with a bigger bank before releasing its security interest.
In these cases, it’s necessary to proceed to a legal course of action in order to clear the aircraft’s title by filing a quiet title action suit.
At their core, quiet title actions are nothing new. In fact, they’ve been used in the realm of real estate law since the inception of the American legal system. A real estate quiet title action brings together the landowner and the adverse interest owners (i.e. lien claimants and security interest holders) so the court can adjudicate the legality and priority of their interests. In many instances, the landowner brings forth a quiet title lawsuit because he/she believes the adverse interest owners’ claims against the real estate are illegitimate. The goal of the quiet title suit is to resolve once and for all the legal priority of the landowner’s title against the adverse claims of the other parties.
Aircraft quiet title lawsuits work in much the same way.
- Step 1: The adverse interest owners and/or lien claimants, as well as their heirs and successors, receive notice that their claims are being challenged by the aircraft owner.
- Step 2: After all adverse claimants are properly brought before the court, a judgment is entered declaring the status of the aircraft owner’s title vis-à-vis the adverse interest owners’ claims.
- Step 3: The judgment quieting title is then filed for recording at the FAA.
While an attorney can never guarantee results of a legal action, Wright Brothers has had great success working with several reputable firms in and around Oklahoma City, including Jeff Love from Rosell Law Group. Most are handled for a flat fee and take, on average, anywhere from sixty to ninety days. In many instances, once the adverse lien claimants receive notice, attorneys are able to negotiate a release of the lien claim/adverse interest in the aircraft and dismiss the quiet title action.
In the end, an aircraft quiet title action, properly handled by competent legal counsel, allows aircraft closing to proceed with the title to your aircraft being bought or sold free and clear of any liens.