Understanding Aircraft Title and Liens: Protecting Your Investment During Financing

The Fundamentals of Aircraft Title and FAA Registry System

Aircraft ownership in the United States operates under a unique federal registration system administered by the FAA Aircraft Registry in Oklahoma City. Unlike state-based vehicle title systems, the FAA aircraft registry maintains a centralized database of aircraft ownership, liens, and encumbrances accessible to the public. This system creates both opportunities and challenges for buyers and lenders navigating aircraft transactions.

How the FAA Aircraft Registry Works

The FAA Aircraft Registry serves as the official record of aircraft ownership and security interests in the United States. Every civil aircraft must be registered with the FAA to operate legally, and this registration creates a public record that includes:

• Aircraft Registration Certificate: Documents the registered owner, aircraft make/model/serial number, and registration number (N-number)
• Bill of Sale: Records the transfer of ownership from seller to buyer, establishing the chain of title
• Security Agreements and Liens: Documents any financial encumbrances, mortgages, or security interests held by lenders or other parties
• Releases and Satisfactions: Records the discharge of liens when loans are paid off or security interests terminated
• Conveyances: Any other documents affecting ownership or interests in the aircraft

Understanding aircraft ownership verification requires recognizing that the FAA Registry operates on a "first in time, first in right" principle for recording documents. The order in which documents are received and recorded determines priority, making timing critical in aircraft transactions.

Types of Aircraft Title Documents

Several key documents establish and transfer aircraft ownership:

• AC Form 8050-2 (Bill of Sale): The primary document transferring ownership from seller to buyer; must be notarized and include purchase price
• AC Form 8050-1 (Aircraft Registration Application): Submitted by the new owner to register the aircraft in their name
• AC Form 8050-41 (Release of Lien): Documents the satisfaction and release of a security interest or lien
• AC Form 8050-98 (Security Agreement): Records a lender's security interest in the aircraft as collateral for a loan
• Special Registration Certificate: Temporary registration valid for 120 days while permanent registration processes

The Chain of Title Concept

An aircraft title search examines the complete chain of title—the sequential history of ownership transfers from the aircraft's original registration to the present. A clear chain of title demonstrates unbroken, legitimate ownership transfers with no gaps, irregularities, or unresolved claims. Title issues arise when:

• Missing bills of sale create gaps in the ownership chain
• Improperly executed documents (missing signatures, incorrect notarization) invalidate transfers
• Corporate ownership changes without proper documentation of authority
• Estate transfers lack proper probate documentation
• Liens remain unreleased despite loan payoff

Lenders require clear title before approving aircraft financing because any defect in the chain of title could compromise their security interest in the collateral. For comprehensive guidance on the acquisition process, review our aircraft purchase timeline guide.

International Considerations and the Cape Town Convention

For aircraft with international history or cross-border transactions, the Cape Town Convention creates an additional layer of title documentation. This international treaty establishes a global registry for aircraft security interests, providing lenders with enhanced protection across participating countries. Aircraft with international registration history require searches of both FAA records and the International Registry to ensure comprehensive lien discovery.

Types of Aircraft Liens and Their Priority in Financing

Aircraft liens represent legal claims against an aircraft that must be satisfied before clear title can transfer. Understanding the various aircraft liens types and their priority order is crucial for protecting your investment and satisfying lender requirements during financing.

Consensual Liens (Security Interests)

Consensual liens arise from voluntary agreements between aircraft owners and creditors, most commonly through financing arrangements:

• Aircraft Mortgages: The most common type, created when an owner borrows money to purchase or refinance an aircraft, granting the lender a security interest recorded with the FAA
• Equipment Liens: Security interests in specific equipment or avionics installed on the aircraft, sometimes held by separate lenders
• Lease Security Interests: Rights held by lessors in lease-to-own or operating lease arrangements

Consensual liens follow the "first in time, first in right" priority rule—the first lien recorded with the FAA takes priority over subsequently recorded liens. This makes the timing of lien recording critical in aircraft financing transactions.

Statutory Liens

Statutory liens arise by operation of law without requiring the owner's consent, and they can take priority over previously recorded consensual liens:

• Mechanic's Liens: Created when maintenance facilities, repair shops, or mechanics perform work on an aircraft and remain unpaid; these liens can attach to the aircraft even if the current owner didn't authorize the work
• Storage Liens: Arise when hangar or tie-down fees remain unpaid; the facility may have the right to retain possession of the aircraft until payment
• Tax Liens: Federal, state, or local tax authorities can place liens on aircraft for unpaid taxes, and these often take priority over other liens

The priority of statutory liens varies by jurisdiction and lien type, but many statutory liens can "jump ahead" of previously recorded consensual liens, creating significant risk for lenders and buyers.

Judgment Liens

Court judgments against an aircraft owner can create liens against their assets, including aircraft. These liens arise from:

• Lawsuit judgments for damages, breach of contract, or other legal claims
• Divorce settlements where aircraft are marital property
• Bankruptcy proceedings affecting aircraft ownership
• Creditor claims in estate proceedings

Judgment liens can be particularly problematic because they may not appear in FAA records but still affect the aircraft's title through the owner's personal legal situation.

Understanding Lien Priority and Subordination

Lien priority determines the order in which creditors are paid if an aircraft is sold or repossessed. Generally:

• First Position: The first recorded lien (typically the primary mortgage lender) has first claim to sale proceeds
• Second Position: Subsequently recorded liens are paid after first position liens are satisfied
• Statutory Lien Priority: Some statutory liens (particularly tax liens and mechanic's liens) may take priority over all consensual liens regardless of recording date

Lenders typically require first position liens and will not approve financing if senior liens exist. In some cases, existing lienholders may agree to subordinate their position, moving behind a new lender's lien, but this requires explicit subordination agreements.

The Danger of Undisclosed Liens

Not all liens appear immediately in FAA records. Potential hidden liens include:

• Recently filed liens still in the FAA's processing queue (can take 2-4 weeks to appear in searches)
• Mechanic's liens filed in state courts but not yet recorded with the FAA
• Tax liens filed with the IRS or state authorities but not cross-filed with the FAA
• Judgment liens against the owner that attach to all their property
• Liens on aircraft with recent registration changes or transfers

Professional title searches investigate multiple sources beyond the FAA Registry to uncover these hidden liens before they become costly problems.

Conducting a Comprehensive Aircraft Title Search

A thorough aircraft lien search is essential before purchasing or financing an aircraft. While the FAA Registry provides public access to aircraft records, professional title searches go far beyond simple FAA database queries to uncover potential issues that could jeopardize your investment.

The Professional Title Search Process

Professional aircraft title companies conduct multi-layered searches examining numerous sources:

• FAA Aircraft Registry Search: Complete review of all documents filed for the specific aircraft, including registration history, bills of sale, liens, and releases
• Chain of Title Analysis: Verification that each ownership transfer was properly documented and executed, with no gaps or irregularities
• Lien Search: Identification of all recorded liens, verification of releases for satisfied liens, and confirmation of current lien status
• Owner Background Search: Investigation of the current owner's legal status, including bankruptcy filings, judgments, and tax liens
• State and Federal Court Records: Search for judgments, pending litigation, or other legal actions affecting the aircraft or owner
• International Registry Search: For aircraft with international history, search of the Cape Town Convention International Registry
• Physical Inspection Verification: Confirmation that the aircraft's data plate matches FAA records (serial number, make, model)

Title Search Timeline and Costs

Professional aircraft title searches typically require 3-7 business days and cost $300-$800 depending on the aircraft's history complexity and search depth. Rush services may be available for additional fees. The search should be conducted:

• After reaching a purchase agreement but before closing
• Early enough to allow time to resolve any discovered issues
• Close enough to closing that new liens are unlikely to be filed
• Before the lender commits to financing

Many buyers conduct preliminary searches during the aircraft evaluation phase, then update the search immediately before closing to catch any last-minute filings.

DIY Title Searches: Risks and Limitations

While the FAA provides free online access to aircraft records through the FAA Registry website, DIY searches carry significant risks:

• Processing Delays: Recently filed documents may not appear in online searches for 2-4 weeks
• Document Interpretation: Legal documents require expertise to interpret correctly; subtle issues may be missed
• Limited Scope: DIY searches typically only cover FAA records, missing court records, tax liens, and other sources
• No Professional Liability: If you miss a lien or title defect, you bear the full financial consequences
• Lender Requirements: Most lenders require professional title searches and won't accept DIY searches

The modest cost of professional title searches provides invaluable protection against potentially catastrophic title issues that could cost tens or hundreds of thousands of dollars to resolve.

Common Title Issues Discovered in Searches

Professional title searches frequently uncover issues requiring resolution before closing:

• Unreleased Liens: Previous loans paid off but never formally released with the FAA (requires obtaining releases from former lenders)
• Name Discrepancies: Variations in owner names across documents (requires corrective documentation)
• Missing Bills of Sale: Gaps in the ownership chain (requires reconstructing the chain with affidavits or other evidence)
• Corporate Authority Issues: Transfers by corporations without proper board resolutions or officer authority
• Estate Issues: Aircraft owned by deceased individuals without proper probate or estate documentation
• Pending Liens: Recently filed liens not yet reflected in FAA records

Discovering these issues before closing allows time for resolution, whereas discovering them afterward can result in costly legal battles and financing complications.

Protecting Your Investment: Title Insurance and Best Practices

Even with thorough title searches, risks remain. Aircraft title insurance and strategic protection measures provide additional security for your investment and satisfy lender requirements for comprehensive risk mitigation.

Aircraft Title Insurance Explained

Aircraft title insurance protects buyers and lenders against financial losses from title defects, liens, or ownership disputes that existed before the policy's effective date but were unknown at the time of purchase. Unlike other insurance types that protect against future events, title insurance protects against past events that surface after closing.

Title insurance policies typically cover:

• Undiscovered Liens: Liens that existed but weren't found during the title search
• Forged Documents: Fraudulent bills of sale or other documents in the chain of title
• Improper Execution: Documents that weren't properly signed, notarized, or executed
• Missing Heirs: Claims by heirs not identified during estate transfers
• Clerical Errors: Mistakes in FAA records or document recording
• Legal Defense Costs: Attorney fees and court costs defending against title claims

Types of Title Insurance Policies

Two types of title insurance policies are available for aircraft transactions:

• Owner's Policy: Protects the aircraft buyer's ownership interest; coverage amount equals the purchase price; remains in effect as long as the buyer owns the aircraft
• Lender's Policy: Protects the lender's security interest; coverage amount equals the loan amount; terminates when the loan is paid off; required by most lenders

Buyers typically purchase both policies simultaneously at closing, with the combined cost ranging from 0.5-1.5% of the aircraft's value depending on the aircraft's price, history, and risk factors.

Title Insurance vs. Title Search: Understanding the Difference

Many buyers confuse title searches with title insurance, but they serve different purposes:

• Title Search: Investigates public records to discover existing title issues before closing; allows issues to be resolved before purchase
• Title Insurance: Provides financial protection against title issues that weren't discovered during the search or that arise from pre-closing events

Both are essential components of comprehensive title protection. The search prevents known issues from causing problems, while insurance protects against unknown issues that surface later.

Lender Title Requirements

Aircraft lenders typically require:

• Professional title search by an approved title company
• Lender's title insurance policy naming the lender as insured
• Clear title with no liens except the lender's first position lien
• Proper FAA registration in the borrower's name
• Recorded security agreement establishing the lender's lien
• Title insurance endorsements for specific risks (hangar keeper's liens, etc.)

Failing to meet these requirements will prevent loan approval or closing. For detailed information on lender requirements, see our aircraft loan requirements guide.

Best Practices for Title Protection

Beyond title insurance, implement these protective measures:

• Use Escrow Services: Professional aircraft escrow companies hold funds and documents, ensuring proper sequencing of title transfer, lien releases, and payment
• Verify Lien Releases: Obtain original lien release documents from all previous lenders and verify their recording with the FAA
• Confirm Owner Authority: For corporate or LLC sellers, obtain board resolutions or operating agreement provisions authorizing the sale
• Update Searches Before Closing: Conduct a final title search 24-48 hours before closing to catch any last-minute filings
• Record Documents Promptly: Submit all closing documents to the FAA immediately after closing to establish priority
• Maintain Complete Records: Keep copies of all title documents, bills of sale, and lien releases for future reference

Learn more about the closing process in our comprehensive aircraft escrow and closing guide.

Resolving Title Issues

When title searches uncover issues, several resolution strategies may apply:

• Lien Payoff: Outstanding liens can be paid from purchase proceeds at closing, with releases recorded simultaneously
• Corrective Documentation: Missing or defective documents can be recreated with affidavits, corrective bills of sale, or court orders
• Quiet Title Actions: Court proceedings to resolve disputed ownership or eliminate clouds on title
• Title Insurance Exceptions: Known issues can be excluded from title insurance coverage, with buyers accepting the risk
• Purchase Price Adjustments: Sellers may reduce the price to compensate for title issues buyers agree to accept

Working with experienced aviation attorneys and title companies is essential for efficiently resolving title issues and protecting all parties' interests.

Frequently Asked Questions About Aircraft Title and Liens