Timely Title Transfer in Texas Can Be Confusing
When should an auto dealer transfer title to the customer? Assuming that the dealer has a certificate of title in hand for the vehicle at the time the dealer sells it, which admittedly is not always the case; the answer is that the dealer should transfer title as quickly as possible. The exact date depends on what goal the dealer is trying to accomplish. This post focuses on three such goals- complying with the Texas Transportation Code, retaining deferred sales tax benefits, and ensuring position as a secured creditor in the event of a customer's bankruptcy filing.
The seller of a motor vehicle must file paperwork to title and register a vehicle in the consumer's name within 30 calendar days of the date of sale. In a seller-financed sale, the seller must apply for title and registration in the purchaser's name not later than the 45th day after the date of sale.
Deferred Sales Tax
BHPH dealers in Texas enjoy the ability to defer paying sales tax on the full contract price of a vehicle, if they hold a motor vehicle seller finance license. However, this benefit is lost if title is not transferred by the 60th calendar day after sale. Any unpaid sales tax (most likely, all except what was remitted for the down payment and the first few installment payments) is accelerated and due and payable as of the 60th day.
Consumer Bankruptcy Filing
Some consumers file for bankruptcy protection shortly after they purchase a vehicle. The hope is that the bankruptcy filing occurs before the car creditor has perfected a security interest in the vehicle. In such a scenario, the car creditor would be treated as an unsecured creditor, similar to a credit card company, and would have little hope of receiving any payment for the vehicle. Federal bankruptcy law states that auto dealers are considered secured creditors if a lien is perfected within 30 days of the customer taking possession of the vehicle. In Texas, a security interest is perfected as of the date the county tax assessor-collector accepts a title application that discloses the lien and the filing fee.
To conclude, applying for title transfer within 30 days of the date of sale accomplishes all three goals discussed here. However, the best practice is always to transfer as soon as possible to avoid fines and insure liens are perfected.