Certificate of Title Act Summary

At its 2005 annual meeting, the National Conference of Commissioners on Uniform State Laws approved, and will be recommending to the various states, the Uniform Certificate of Title Act (UCOTA).  The Act proposes uniform rules addressing paper and electronic certificates of title for motor vehicles; including basic rules for creation and transfer of certificates of title, the perfection of security interests through the certificate of title system and for electronic certificates of title in parallel with paper certificates.

Every state has certificate of title registration for motor vehicles in some form.  Statutes have been proposed and enacted since the 1920’s when automobiles became popular.  NCCUSL has been involved with the evolution of uniform or model statutes since that time.  It proposed a Uniform Motor Vehicle Certificate of Title and Anti-theft Act in 1955.  Certificates of title and their registration form a chain of title that assures buyers that they are purchasing a motor vehicle that the sellers are entitled to sell.  They are also important to creditors who finance the purchase or lease of motor vehicles.  The perfection of security interests held by creditors on motor vehicles depends upon registration of the security interest on the certificate of title so the creditor has priority over any other creditor in the vehicle as collateral for the loan if there is a default.  When motor vehicles are stolen, the registration of vehicle identification numbers provides law enforcement with information on the rightful owners.  There are also revenue implications with respect to registration of titles from state to state. 

Though there are statutes in every state, they are not uniform despite efforts over the years to develop uniformity between the states.  Motor vehicles are more than ever, however, bought and sold in a national marketplace.  One need only look at the web sites that cater to individual sellers and buyers to see that this is true.  Transactions are more universally electronic in character and electronic transactions will soon totally dominate the marketplace.  Title registrations are migrating from paper documents to electronic records with great rapidity, as well, and electronic transactions are essentially without boundaries.  All of these developments make uniformity of law with respect to registration of titles more and more important.  In 2005, the Uniform Law Commissioners once again propose an act to stitch the states together with a new UCOTA.

The following is a brief summary of a number of the key provisions of UCOTA: 

Scope.  The Act deals with motor vehicles.  It does not address watercraft or manufactured homes.   It also excludes vehicles owned by governments or governmental units.  The Act does not address the registration of vehicles in the enacting state, apart from the certificate of title process.  Nor does it address sales, excise or other taxes relating to vehicles.

Choice of Law.  The Act generally covers certificates of title created by the enacting state and certificates of origin (see below), which, by their express terms or choice of law principles of the enacting state, are governed by the law of the enacting state.  If a vehicle is covered by a certificate of title issued by another state, or a certificate of origin is governed by the law of another state, the Act requires the application of the law of the other state to issues relating to the certificate of title or certificate of origin. 

Paper and Electronic Certificates.  While some states have already begun converting their titling systems to electronic format, the conversion times will vary among the states.  Also, even in electronic states, there will continue to be uses for paper titles.  For these reasons the Act provides for both electronic and paper systems, and for conversions of form (electronic to paper and conversely) where appropriate, thus relieving an enacting state of the burden of amending its statutes simultaneously with converting to electronic systems.

Minimum Disruption to Existing Systems.  The Act has been drafted to reflect, as much as possible, current titling practices in use by states, motor vehicle title administrators, manufacturers, sellers, and financiers.  For example, the Act recognizes the essential role of the vehicle identification number, continues the practice of perfecting security interests within the vehicle titling system, and leaves undisturbed odometer disclosure, environmental protection, title branding and other states’ provisions for the protection of consumers.

Certificates of Origin.  This is a relatively new document required to be registered in most states.  It comes from manufacturers or importers of motor vehicles.  A manufacturer or importer which creates a certificate of origin and which transfers the certificate is required to sign and deliver the certificate to the transferee or, if applicable in connection with an application for a certificate of title, to the state’s department of motor vehicles (referred to in the Act as the “office” of the state).  Certificates of origin may be in written or, when and as the enacting state establishes a requisite electronic infrastructure, electronic form.   They are not a substitute for certificates of title and may coexist with them when issued for the same motor vehicles.

Application for a Certificate of Title.  The Act sets forth minimum information which must be contained in an application by an owner of a vehicle in order for the owner to obtain a certificate of title. The information must include, among other information, the vehicle identification number, a description of the vehicle, and an indication of all known security interests and title brands.

Creation or Rejection of a Certificate of Title.  The Act sets forth grounds on which the office may reject an application for a certificate of title, including the failure of the application to contain the information required by the Act or to comply with other law of the state.  The application may also be rejected if the office has a reasonable basis to believe that the application is fraudulent or would facilitate a fraudulent or illegal act.  Unless the office has grounds under the Act to reject the application for a certificate of title, the office must create the certificate of title.

Cancellation of a Certificate of Title.  The office may also cancel a certificate of title that it has created if it would have had grounds to reject the application initially.  The office is required to hold a timely administrative hearing if the cancellation is challenged by the applicant within a certain period.

Contents of a Certificate of Title.  The Act sets forth the minimum information that must be contained in a certificate of title created by the office, including certain information contained on the application and an indication of any security interests, any prior registrations of the vehicle in any other jurisdictions and any known title brands.

Files Maintained by the Office.  The office (of the motor vehicle administrator in a state) is required to maintain a file containing all records relating to a certificate of title including any stolen property reports and, as referred to below, any security-interest statements.  The information in the file must be capable of being accessed by reference to the vehicle identification number.  The information on the certificate of title is a public record, but whether other information in the file is a public record is governed by other law.  The Act also contains provisions for searches of the files of the office for security-interest statements and termination statements referred to below.

Transfer of Certificate of Title.  The Act requires that, if vehicle is sold, the seller must  sign and deliver the certificate of title to the buyer or, if the certificate of title is electronic, that the seller must provide a record of the transfer to the office.  The buyer has a specifically enforceable right to compel the seller to do so.  A transfer of ownership of a vehicle is not binding on third parties claiming an interest in the vehicle until the transfer of the certificate of title to the buyer or, if the certificate of title is electronic, until the record of the transfer is provided to the office.  If the certificate of title is electronic, then, before making any agreement to transfer or any consideration for the transfer is paid, the transferor must also deliver to the transferee all of the information that would have been available for the buyer’s inspection on a written certificate of title.  The record of the transfer of the electronic certificate of title provided to the office must indicate that this delivery requirement has been met.

Protection of Buyers and other Transferees.   The Act provides that a buyer may be a buyer in ordinary course (usually a buyer from a merchant seller) without receiving a transfer of the certificate of title.  The Act contains a similar rule protecting a buyer in ordinary course when the owner entrusts the vehicle to a merchant seller.  A transferee of a vehicle takes subject to a security interest indicated on the certificate of title or, if the certificate of title contains a statement that the vehicle may be subject to a security interest, to a security interest not so indicated.  Conversely, the Act contains rules protecting an innocent buyer from a merchant seller and an innocent secured party if the certificate of title does not indicate a security interest or that there may be one.

Other Transfers; Lost Certificates.  The Act contains provisions for the transfer of a certificate of title by a secured party in connection with the foreclosure of its security interest in the vehicle and also contains provisions for other involuntary transfers of the certificate of title through death of the owner, creditor process and the like.  In addition, the Act contains provisions for the replacement of lost, destroyed or mutilated certificates of title as well as a mechanism for the office to be informed of the transfer of ownership of a vehicle that is not accompanied by the transfer of a certificate of  title.

Perfection of Security Interests.   Article 9 of the Uniform Commercial Code provides for the perfection of a security interest in a vehicle, with certain exceptions, by reference to the state’s certificate of title statute.  The Act permits such perfection through the submission of a “security-interest statement”.  The security-interest statement must contain the name of the debtor, the name of the secured party or its representative and a description of the vehicle, and its submission to the office must have been authorized by the debtor in the same manner as a financing statement is authorized to be filed under Article 9.  The office may reject the security-interest statement only under certain enumerated circumstances.  The office’s failure to index the security-interest statement correctly or to indicate the security interest on the certificate of title does not affect the perfection of the security interest.  Perfection is likewise not affected if the secured party is listed on the certificate of title as owner instead of secured party or if the secured party assigns the security interest.

Termination Statements.  The Act contains provisions requiring the secured party to terminate a security-interest statement when the secured obligations have been satisfied and the secured party has no commitment to make additional advances.

Transition Provisions.       The Act generally applies to all certificates of title in existence on the effective date of the Act, but it does not impair transactions validly entered into under former law before the effective date or the perfection or priority of security interests in vehicles established before the effective date.

UCOTA will remove impediments to motor vehicle transactions inherent in the existing non-uniform system and will make the records more accurate and secure.  The marketplace will become more efficient and all parties to motor vehicle transactions will greatly benefit.  The states should consider and enact the new UCOTA as soon as possible.