Like with mortgages, a third-party company joins the process to do a title search, verify and file FAA documentation, and hold money in escrow until closing. Aviation Title and Escrow companies provide these services to help buyers and sellers accurately and efficiently complete transactions.
It is common for sellers to request an earnest money deposit from a potential buyer as evidence the buyer is serious. For a secure location to hold the earnest money, we recommend opening an escrow account with an aviation title and escrow company such as AOPA’s Strategic Partner, AeroSpace Reports. AeroSpace reports offers AOPA members discounts on their services and will play an integral role in making sure the transaction is completed successfully. Once the escrow account is opened and the earnest money is deposited, that earnest money is kept in the escrow account by the neutral, third-party escrow company until the purchase is completed, or both buyer and seller agree to walk away from the transaction. At closing, the lender will transfer the loan proceeds into the same escrow account so that the escrow agent can confirm the receipt of the full purchase price with all parties.
In between those actions, the escrow company will run a title search on the aircraft. Although aircraft don’t have titles like other vehicles do, title is the accepted term used in the industry. A title search involves reviewing the registration and ownership records that are on file at the FAA, making sure that all previous documentation was filed and recorded correctly, and that any issues are resolved satisfactorily.
It is not uncommon to run into situations where a lien wasn't released properly, or an application for registration or bill of sale wasn't filed or documented appropriately. The escrow company’s job is to confirm both to the buyer and the lender that the aircraft ownership and registration history are clear and that a complete transfer of ownership can be achieved.
That’s why AOPA Finance recommends opening an escrow account as soon as you decide on an airplane. During the title search, if escrow finds any problems, you will be notified in time to attempt a resolution prior to closing. Some problems can take longer to resolve than others, depending on the details of the situation. The escrow company has the resources and experience to help resolve aircraft registration problems, however, these additional services often come with an additional cost. It’s best to discuss these services and costs with your escrow agent as soon as you are advised of a concern.
In addition to holding funds for the purchase, and completing a title search, escrow will also gather and verify the required FAA documentation to complete the transfer of ownership and registration to the new owner. The standard FAA documents include the Bill of Sale, Application for Registration, Security Agreement which confirms the lender’s interest (lien) in the aircraft, and a Statement in Support for those registering the aircraft to an LLC.
Finally, the escrow company will confirm that everybody is ready to close. Then it will handle the transfer of funds between you, the lender, and the seller. At the closing, the escrow company will send the money to the seller via wire transfer, ensuring that the seller is able to confirm the arrival of those funds in their account that same day.
At the same time, the escrow company will also file the FAA paperwork. Most escrow companies have an office in the FAA records building, so they will, in most cases, walk down the hall and give the paperwork to the FAA. The FAA will stamp the paperwork, and then the escrow will receive a stamped copy of the paperwork saying the FAA received it on that specific closing date. Regardless of when you choose to take delivery, at the time that documentation is filed, ownership of the aircraft transfers to you.
Using a title and escrow company when purchasing an airplane through a lender is a requirement, however, it is highly recommended even when paying with cash. These companies help verify the aircraft's title history, ensuring there are no liens or claims against it, which protects your investment. They also facilitate the proper transfer of ownership, ensuring all legal requirements are met, and provide a neutral third party to manage the funds securely. This added layer of protection minimizes the risk of disputes and helps ensure that the transaction complies with aviation regulations, giving you peace of mind in your purchase.
Another benefit to using escrow is that it provides a reliable audit trail for lenders. There are times when a buyer will need to pay cash in the event financing doesn’t line up with the required timeline. In these cases, using escrow for the initial purchase facilitates the lender’s ability to provide financing after the fact.
Great advice. Great rates. Helpful and responsive reps you can trust. Three good reasons to turn to AOPA Aviation Finance when you are buying or refinancing an airplane. If you need a dependable source of financing with people who are on your side, just call 800.62.PLANE (800.627.5263), or click here to request a quote.
