Keeping the title clear on your Aircraft — Originally published in BusinessAir Magazine, July 2020, Volume 30, No. 7.
As an aircraft owner, it is important to make sure the title to your aircraft remains clear. Unlike some other countries, in the United States we have an owner based registry where liens can be filed on the aircraft by anyone. Since a notice of a lien can be sent to the FAA Civil Aviation Registry (the “Registry”) without the knowledge of the aircraft owner, sometimes these filings create valid liens on the aircraft and other times a cloud on the title is created by these filings. It is a good idea to have a title search of the Registry and, if applicable, the International Registry, done annually to make sure there are not any issues with the title of your aircraft. If this annual review is not done, then at the very least title searches for your Aircraft should be done when the decision is made to market the aircraft for sale. By conducting the searches prior to finding a buyer for the aircraft, if it is discovered that there are encumbrances/liens which have attached to the aircraft or clouded the title, that have not been properly released, then such encumbrances/liens can be addressed early in the sales process.
I recently worked on a transaction where at the time of the purchase the aircraft the owner had financed the aircraft. Subsequently the loan was paid off but the lien release was never filed with the Registry. Ten years later during the process to sell the aircraft, the lien was discovered. To further complicate matters, the lender was no longer in business. A simple title search run annually or even every other year could have caught this issue much sooner and made the time to research and resolve the lien easier and less costly. In another recent transaction the aircraft owner discovered that there were five liens on the aircraft because the management company for the aircraft failed to pay for maintenance that was performed on the aircraft prior to the management company going out of business. The owner of that aircraft did not know of the liens until the aircraft was under contract to be sold and the escrow company, as part of the sale process, performed the title searches on the Registry. Having to track down five lienholders in a short timeframe in order to avoid the sale from being delayed added unnecessary stress to the closing.
There are many great escrow companies, in Oklahoma City, where the Registry is located. The escrow companies will perform the searches on the Registry for a few hundred dollars. In order to perform the searches, the escrow agent simply needs to know the make, model and serial numbers of the airframe, engine(s) and propellers (if applicable).
In addition to liens filed on the Registry, an international interest can also be registered on the airframe or engines of an aircraft of a certain size on the International Registry that exists as a result of the Cape Town Treaty, which the United States is a signatory. However, the International Registry is a two- party system and requires consent from the aircraft owner before the international interest is registered against the aircraft. As a result, it is less likely that an international interest will attach to the aircraft without the knowledge of the aircraft owner. However, when an aircraft loan is paid off, the aircraft owner should request post-closing International Registry searches evidencing the discharge of the international interest.
In short, for a bit of annual work at a nominal cost, an aircraft owner should conduct annual searches at the Registry to ensure that the aircraft title remains clear of any unknown or unwarranted liens or encumbrances that have attached to the title or are clouding title of the aircraft. For various reasons, this will save the aircraft owner headaches in the future when the aircraft is sold.