Let’s talk about clearing clouded aircraft titles. There are quite a few circumstances that cause clouded aircraft titles. Any break in the chain of title can cause difficulties for owners when they try to buy, sell, or register their airplane. If the problems are overlooked, new owners, or owners in trust, inherit what the previous owner did not handle. If you’re considering buying, selling, or registering an aircraft in trust, it’s important to understand the potential title defects and problems so that they can be addressed, and your transaction and registration go smoothly.
Federal Aviation Authority (FAA) aircraft records contain numerous documents necessary to maintain the title of an aircraft – including title transfer instruments, liens, security agreements, and releases, to name a few – that are filed at the FAA located in Oklahoma City, Oklahoma. The FAA has a long list of rules and regulations that must be met in order for these documents to be recorded, as seen in our blog The Difference between Filed and Recorded FAA Documents & Why it Matters.
An aircraft title can only be clear if these documents are all properly signed and recorded, and there are no unreleased chattel mortgages, security agreements, tax liens, mechanics liens, or similar items on record against the aircraft.
The most common aircraft title issues are unreleased liens or security agreements on the title. Many of these liens can be 20 or more years old. Finding the parties involved in the transaction can be difficult, leaving a “cloud” on the title that is difficult to remove. The difference between a lien and a security agreement is that one is “consensual”, meaning the owner of the aircraft agreed to the lien, and the other is “non-consensual.”
Mortgages and security agreements are consensual. Usually, the buyer of the aircraft borrowed money from the bank to buy the aircraft. Many of these liens are left outstanding because the lending institution changed hands or went out of business, or was bought by another bank, then another, until all records of the original lien are lost and gone forever. Getting the most recent successor in interest to sign a release of a lien they don’t know anything about can be quite a challenge.
Liens, on the other hand, 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. They can wreak havoc on a title even if they are not in recordable format.
Other title clouds arise from errors in documents, which can be as minor as a missing or incorrect signature or inconsistent owner information on a bill of sale. Often buyers will use a title that is not acceptable to the FAA. Perhaps a break in ownership is caused by a missing bill of sale or the missing signature of one of the previous owners of the plane. The list of possible title issues is long, and even the most experienced examiner can still happen upon something they have never seen before.
With so many possible problems, it is important to examine the title of any aircraft before registering in trust. Clearing a title can take time, energy, and resources, and a really mucked up title can be a deal-breaker. With Aircraft Guaranty’s knowledgeable staff and the help of our sister company, Wright Brothers Aircraft Title, we have the experience needed to clear aircraft titles and ensure proper registration.