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When
Bad Things Happen To Good Aircraft Buyers - Recognizing and Avoiding
Aircraft Title Problems
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by:
Greg Reigel
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When
Bad Things Happen To Good Aircraft Buyers: Recognizing And Avoiding
Aircraft Title Problems
Whether you are purchasing your first aircraft or the latest in a
succession of aircraft, as an aircraft buyer you need to proceed with
caution. If you don’t, after the seller has left with your money, you
may have unanswered questions: Do I really own the aircraft? Have I
missed any skeletons hiding in the closet that threaten my continued
ownership and possession of my aircraft? What happens when someone else
claims they own or have a prior interest in my aircraft?
To answer these questions, first we need to discuss what the FAA
requires for an aircraft purchase transaction. Then we will talk about
some of the problems/issues that an unwary buyer could face. Finally,
we will address some of the steps an aircraft buyer can take to ensure
that he or she will be the legitimate and undisputed owner of the
aircraft being purchased.
Recording Purchase Transactions With The FAA.
When you purchase an aircraft, you receive an FAA
Form 8050-2, Aircraft Bill of Sale showing the transfer/sale
of the aircraft from the seller to you, the aircraft buyer. The bill of
sale must then be recorded with the FAA along with an FAA Form 8050-1,
Aircraft Registration Application. (Unfortunately, Form 8050-1 is not
available online, but must be obtained directly from the FAA or your
local FSDO). Additionally, for the most part, all interests in
aircraft, whether a security interest, lien, mortgage or judgment, must
also be recorded with the FAA
Registry in Oklahoma City in order to be valid and the first
recorded interest usually has priority over interests recorded at a
later date.
Failure to timely and properly comply with these filing and recording
requirements can result in problems for the aircraft buyer. What types
of problems can happen? Although a variety of such problems exist, two
specific ways in which an aircraft buyer can find himself or herself in
trouble are when a seller fails to convey title to the buyer or when a
seller fails to convey "clear" title to the buyer.
Seller Fails To Convey Title. In this
situation, the aircraft buyer does not become the actual owner of the
aircraft. The seller may not necessarily intend for the aircraft buyer
not to take title to the aircraft. Rather, the seller’s failure to
convey title to the aircraft buyer is inadvertent or unknowing. One
such situation occurs when the bill of sale contains errors. Potential
errors can include when the person signing the bill of sale does not
have authority to sign on behalf of the corporation or limited
liability company that owns the aircraft, when the aircraft is
incorrectly identified on the bill of sale or when the person signing
the bill of sale does not have capacity (e.g. a person signing the bill
of sale is a minor, mentally insane or incompetent).
Unfortunately, situations also arise in which the seller’s actions are
intentional and result in the aircraft buyer not receiving title to the
aircraft. This can happen when a seller sells an aircraft twice and the
second buyer actually records his or her bill of sale before the first
buyer. A similar result occurs if the seller forges the bill of sale or
if the aircraft is subject to judicial proceedings (such as bankruptcy,
receivership, probate, conservatorship or dissolution of marriage), and
the court has not authorized the sale.
Seller Is Unable To Convey Clear Title.
In this situation, the bill of sale may be valid and convey title to
the aircraft to the aircraft buyer, but that aircraft may be subject to
the interests of some other third-party. Such prior interests can
include judgment liens, tax liens, mechanic’s liens and various other
liens and security interests. These prior interests would likely be
recorded before the buyer’s bill of sale. It is also possible, in some
limited circumstances, to have an unrecorded, possessory lien against
an aircraft. (Unrecorded, possessory liens make a strong case against
purchasing an aircraft sight unseen without confirming the location of
the aircraft and lack of claims by the party in possession if other
than the aircraft seller).
What To Do? With such potential problems
lurking in the shadows, what can/should an aircraft buyer do? Well, one
answer is to hire an aviation attorney to assist you with the
transaction. An aviation attorney will be familiar with the filing and
recording requirements of the FAA and will make sure that the bill of
sale and aircraft registration application are completed accurately,
properly and filed in a timely manner. An aviation attorney will also
be able to perform due diligence on your behalf including a title
search and name searches for the seller to discover any judgments,
liens, bankruptcies or security interests. He or she can also help you
resolve any title defects that may be discovered during due diligence.
An aviation attorney may further help you obtain an affidavit from the
seller affirmatively stating that the seller is not aware of any
judgments, liens or encumbrances affecting the title to the aircraft.
This may assist you in pursuing or asserting a fraud claim against the
seller if a title issue arises which you can show the seller was aware
of when the affidavit was signed.
Another way to protect yourself is to buy title insurance for your
aircraft. The aircraft title insurer will ensure your documentation is
accurate and filed in a timely manner and it will also perform the same
types of title and name searches an aviation attorney would perform on
your behalf. However, the title insurer may or may not be able to
assist you in resolving any title defects and won’t be able to provide
you with any legal advice regarding the purchase transaction.
The bottom line is that you as an aircraft buyer need to proceed with
caution and perform due diligence when purchasing an aircraft. Although
this may seem like added cost in the short term, in the long run these
steps can save you the large expense, and possible loss of your
aircraft, that can result from title defects or third-party claims
against your aircraft.
As always, fly safe and, when you are purchasing an aircraft, buy smart.
About the Author
By Gregory J.
Reigel
Greg is an aviation attorney and holds a
commercial pilot certificate with instrument rating. His handles
aviation litigation, including insurance matters and creditor’s rights,
FAA certificate actions and aviation related transactional matters. He
can be reached via e-mail at greigel@aerolegalservices.com or check out
his website at www.aerolegalservices.com.
© 2004 All
rights reserved.
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