As an aircraft owner, it is important to make sure the title of your aircraft remains clear. Unlike some other countries, in the United States we have an owner-based registry where liens can be filed against the aircraft by anyone. Since a notice of 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. It is a good idea to have a title search of the 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 title, then such encumbrances/liens can be addressed early in the sale process. Another reason to conduct the annual searches is that if the aircraft is financed, then the lender may consider it a breach if there are additional liens placed on the aircraft.
Recently, I have had two separate matters where tax liens were attached to the aircraft without the owner of the aircraft being aware of such attachment. In both cases, the liens were from a time before the current owner owned the aircraft. These types of liens are not uncommon and are better addressed sooner rather than later. Often, the only way to know about these liens is through annual title searches.
In another transaction I was involved with, the aircraft owner discovered that there were five liens attached to the aircraft they owned because a former management company failed to pay for maintenance work done on the aircraft. The owner did not know there were liens on the aircraft until it was under contract to be sold and the escrow agent provided the initial title searches. Unfortunately, in this case, since some of the liens had been attached to the aircraft for more than five years, it proved difficult to locate the lienholders. As a result, the closing had to be delayed until title could be cleared.
I strongly encourage annual title searches to be done by aircraft owners. If the liens attached to the aircraft are the result of a former owner, then the former owner should have a duty to clear the title even after closing. In most aircraft sales the former owner provides a warranty bill of sale where the seller agrees to defend title of the aircraft, even after closing. However, the longer the lien is attached the harder it becomes to reach the seller and have the seller take the actions necessary to clear the liens. The earlier unexpected liens are detected, the more likely it is that the seller will still be reachable and will be willing to take the action necessary to clear title.
There are many great escrow companies in Oklahoma City where the Registry is located. The escrow companies will perform searches on the Registry for a nominal fee. In order to perform the searches, the escrow agent simply needs to know the aircraft registration number and the make, model and serial number of the engines and propellers (if applicable).
In addition to liens filed on the Registry, an international interest can be registered on the airframe and engines of a certain size on the International Registry (“IR”). The IR exists as a result of the Cape Town Treaty, which the United States is a signatory. However, the IR is a two party system and requires consent from the aircraft owner before an international interest is registered against the aircraft. As a result, it is less likely that an international interest will be attached to the aircraft without the knowledge of the aircraft owner. However, if an aircraft is financed and when an aircraft loan is paid off, the aircraft owner should request post-closing IR searches evidencing the discharge of the international interests.
In short, for a bit of annual work and nominal cost, an aircraft owner should conduct annual searches at the Registry, and if applicable, the IR. This would ensure that the aircraft title remains clear of any unknown or unwarranted liens or encumbrances that have attached to title and/or are clouding title of the aircraft. For various reasons, this search will save the aircraft owner headaches in the future when the aircraft is sold. If annual searches are not conducted, the aircraft owner should consider at least doing a search at the end of the first year of ownership and again as soon as a decision is made to list the aircraft for sale.