Contributed by Tracey L. Cheek, vice president of Aircraft Title Insurance Agency, Inc.
Title disputes are not all that uncommon. As the aircraft on the market get older, they have more potential for developing title issues. There are dozens of title cases that have resulted in some form of loss for either an owner or a lender.
Some of the problems commonly associated with aircraft titles include the following:
FAA Title Records.
Although the FAA requires that all aircraft be registered and recorded through the FAA, their records do not have final legal authority in determining rightful ownership. If there are any reasonable disputes made regarding rightful ownership, only state courts have the final word.
Fraud, Undue Influence, or Duress.
Not everyone is honest, and some aircraft paper paths are difficult to trace. Sellers sometimes forge deregistration notices or even sell the same aircraft more than once.
This scenario occurred in the much-publicized case of Philko v. Shacket; the selling company sold an aircraft to two different buyers. The first buyer (Shacket) bought and took possession of the aircraft but the original title documents were never filed or recorded at the FAA. The buyer was given a copy of the bill of sale and was told that the seller would take care of the paperwork. The seller then turned around and sold the aircraft to the second buyer (Philko), who received their title documents and filed them correctly with the FAA. So Shacket was in possession of the aircraft while Philko held the title with the FAA. The courts ruled that Shacket owned the aircraft because the applicable state law gave title under the applicable facts to the party in possession.
Internal Revenue Service Tax Liens.
IRS liens cannot be filed with the FAA and are good for 10 years and renewable for another 10. They could exist against an aircraft and a search of the FAA records would never find them. Even if you perform tax lien searches against the current owner, liens could exist against prior owners that could still attach to the aircraft.
State and Local Tax Liens.
Some state tax liens are filed at the FAA, and some are not. Regardless of filing, validity is ultimately determined by state law.
Personal Property Tax Liens.
Many title claims are a result of personal property tax liens that the seller failed to pay, so the taxing authority filed a suit against the aircraft. State law regarding these liens varies, and none of the liens has been filed with the FAA.
Estate Issues
A search of the records may or may not reveal that an aircraft was transferred out of an estate. There could be parties to the estate that believe they still have an interest in the aircraft, or taxes due that were left unpaid.
Mechanic’s Liens
Mechanic’s liens exist where a mechanic claimed an interest in an aircraft based on a lien that was wiped out in a repossession. These claims can sometimes be made years after the work was performed.
Lack of Capacity or Authority
Courts also occasionally determine that a prior grantor in a claim of title lacked capacity to transfer the title. In one case, this was determined three title transfers later even though the owner who was notified of the title claim had been in possession of the aircraft for two years before the claim was made.
Pending Litigation
Because notice of litigation cannot be filed at the FAA, an aircraft could be involved in a lawsuit and no one would know it when they conduct a record search. State court litigation can impact ownership of subsequent owners.
As with real estate transactions, there are some circumstances in the chain of title that are more likely to see title issues than others. Cross-border transactions, repossessions, estates and bankruptcies all raise more red flags with aircraft titles than other transactions.
Simply put, if you are going to invest in an asset like a business aircraft, you should be proactive and do what you can to protect your title to that asset. It just makes good business sense. And it provides peace of mind.
Tracey L. Cheek is Vice President and co-founder of Aircraft Title Insurance Agency, Inc. She has nearly 20 years of experience in the aircraft title insurance industry and extensive experience collaborating with underwriters, resolving complex title issues and facilitating difficult closings. She has also worked with attorneys around the globe to issue policies on international transactions. Tracey often shares her knowledge on key issues by speaking at aircraft industry conferences, and is widely regarded as one of the most knowledgeable title insurance professionals in the industry.
Aircraft Title Insurance Agency, Inc., focuses its business solely on issuing title insurance policies for owners and lenders in the aviation industry. The founders of the business have more than 40 years of experience in the aircraft title insurance industry, and have helped draft all of the policies their underwriters have ever written. Aircraft Title Insurance has a relationship with all of the title companies and closing agents in Oklahoma City and can work with most anyone to issue title insurance policies for buyers and lenders of the aviation community. For more information, visit actitleins.com.