Can a New York Garage Lien Sale Wipe Out a Perfected Lien?

When a lienholder has perfected its lien in a vehicle, the perfected lien is protected against loss to later claims made against the vehicle. Garage lien claims present a quirky problem because garage lien sales are done by self-help. Self-help means that the garage places the vehicle for sale on its own say-so with no involvement from a court. Because garages are trying to get as much money as possible by the self-help sale, garages often claim that the sale wipes out perfected liens so that the buyer acquires the vehicle lien-free. This is not true.

First, nothing in the New York Lien Law authorizes the destruction of perfected liens by self-help sale. The law simply allows the garageman to sell what he has, which is a vehicle subject to a perfected lien. New York’s highest court had ruled that the self-help sale process is not valid unless the garage has first had its lien claim confirmed by an impartial source, which means a court. (Sharrock v Dell Buick, 45 NY2d 152)

Second, New York Vehicle and Traffic Law 2118 confirms that a perfected lien prevails over later in time claims. There are no provisions in Section 2118 that indicate any different result due to a self-help garage lien sale.

Third, New York UCC 2-403 mandates that when goods are sold, the buyer acquires only what the seller had. Because a self-help garage lien seller has the vehicle subject to a perfected lien, the most the buyer can obtain is the vehicle with the perfected lien still on it.

The notion that the buyer could be an innocent “BFP” (bona fide purchaser) does not change the outcome. UCC 2-403 (4) directs that rights to perfected liens are governed by UCC Article 9. The relevant Section of UCC Article 9 is Section 9-315 (a) (1) that requires that a perfected lien continues despite any sale. The only exceptions are when the lienholder voluntarily releases its lien.

The bottom line is that a garage lien cannot alter a perfected lien unless there is a voluntary lien release.

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