H.B. 404

1

MOTOR VEHICLE BUSINESS AMENDMENTS
2 2010 GENERAL SESSION
3 STATE OF UTAH
4 Chief Sponsor: Don L. Ipson
5 Senate Sponsor: ____________
6
7 LONG TITLE
8 General Description:
9 This bill modifies the Motor Vehicles Code by amending provisions relating to motor
10 vehicle business.
11 Highlighted Provisions:
12 This bill:
13 . amends priority rights for certain security interests in certain motor vehicles;
14 . amends constructive notice provisions for liens and encumbrances against vehicles,
15 vessels, and outboard motors;
16 . provides that certain corporate surety bonds shall be conditioned upon the dealer not
17 violating certain provisions;
18 . provides that reasonable cause for denial, suspension, or revocation of a license
19 includes:
20 . having had a license revoked within five years from the date of application; or
21 . having had a bond revoked within five years from the date of application;
22 . specifies certain acts or practices that are unlawful for a motor vehicle business
23 licensee to engage in;
24 . amends provisions relating to the payoff of liens on motor vehicles traded in; and
25 . makes technical changes.
26 Monies Appropriated in this Bill:
27 None

28 Other Special Clauses:
29 None
30 Utah Code Sections Affected:
31 AMENDS:
32 41-1a-601, as last amended by Laws of Utah 2007, Chapter 272
33 41-1a-604, as last amended by Laws of Utah 1992, Chapter 218 and renumbered and
34 amended by Laws of Utah 1992, Chapter 1
35 41-1a-606, as last amended by Laws of Utah 2000, Chapter 252
36 41-3-205, as last amended by Laws of Utah 2007, Chapter 267
37 41-3-209, as last amended by Laws of Utah 2008, Chapter 382
38 41-3-402, as last amended by Laws of Utah 2006, Chapter 108
39 ENACTS:
40 41-3-211, Utah Code Annotated 1953
41 REPEALS AND REENACTS:
42 41-1a-605, as last amended by Laws of Utah 2006, Chapter 252
43
44 Be it enacted by the Legislature of the state of Utah:
45 Section 1. Section 41-1a-601 is amended to read:
46 41-1a-601. Lien validity -- Security interest.
47 (1) Except as provided under Subsection (2) or (3), a lien upon a vehicle, vessel, or
48 outboard motor, except a lien dependent upon possession, is not valid against the creditors of
49 an owner acquiring a lien by levy or attachment, or subsequent purchasers, or encumbrancers
50 without notice until Sections 41-1a-602 through 41-1a-606 have been complied with.
51 (2) Security interests in inventory consisting in part of vehicles subject to registration
52 under this chapter, that are held for sale by a person in the business of selling goods of that
53 kind, shall be perfected under Section 70A-9a-310 , except that:
54 (a) buyers in the ordinary course of business, as defined in Section 70A-1a-201 , take
55 free of the security interests as provided in Section 70A-9a-320 [.]; and
56 (b) security interests of persons extending credit to buyers in the ordinary course of
57 business, as defined in Section 70A-1a-201 , take free of and have priority ahead of the security
58 interest in inventory.

59 (3) Security interests in inventory consisting in part of vehicles subject to registration
60 under this chapter, which are held for sale by a person in the business of selling goods of that
61 kind, shall be perfected under Section 70A-9a-310 , except that prior owners and lienholders
62 with a security interest noted on the title shall have priority unless Section 41-3-402 has been
63 complied with.
64 Section 2. Section 41-1a-604 is amended to read:
65 41-1a-604. Filing effective to give notice of liens.
66 The filing and the issuance of a new certificate of title under Sections 41-1a-602 and
67 41-1a-603 constitute constructive notice of all liens and encumbrances against the vehicle,
68 vessel, and outboard motor to creditors of the owner, to a person financing the inventory of a
69 motor vehicle dealer that sells or offers the vehicle for sale, and to subsequent purchasers and
70 encumbrancers.
71 Section 3. Section 41-1a-605 is repealed and reenacted to read:
72 41-1a-605. Constructive notice.
73 (1) If a person files an application in the form of an original certificate of title in
74 accordance with Section 41-1a-602 within 30 days after the owner receives a delivery of the
75 vehicle, vessel, or outboard motor, constructive notice dates from the time of the execution of
76 the document and the security interest takes priority over the rights of a buyer, lessee, or lien
77 creditor which arise after the time of execution of the documents.
78 (2) If a person files an application in the form of an original certificate of title pursuant
79 to Section 41-1a-602 after 30 days after the owner receives delivery of the vehicle, vessel, or
80 outboard motor, constructive notice dates from the time of filing of the documents and the
81 security interest takes priority over the rights of a buyer, lessee, or lien creditor as of the time of
82 filing.
83 (3) If a person relocates a motor vehicle within the state with a title issued by another
84 state bearing a lien, the rights of the lienholder are perfected in accordance with the law of the
85 state issuing the title.
86 Section 4. Section 41-1a-606 is amended to read:
87 41-1a-606. Method of giving notice -- Exceptions.
88 The method provided in Sections 41-1a-602 through 41-1a-605 , for giving
89 [constructive] notice of a lien or encumbrance upon a registered vehicle is exclusive except for

90 liens dependent upon possession and any lien or encumbrance filed as provided under this
91 chapter, which are exempt from the provisions of Section 70A-9a-311 , and other provisions of
92 law that otherwise require or relate to the recording or filing of instruments creating or
93 evidencing title retention or other liens or encumbrances upon vehicles of a type subject to
94 registration under this chapter.
95 Section 5. Section 41-3-205 is amended to read:
96 41-3-205. Licenses -- Bonds required -- Maximum liability -- Action against
97 surety -- Loss of bond.
98 (1) (a) Before a dealer's, special equipment dealer's, crusher's, or body shop's license is
99 issued, the applicant shall file with the administrator a corporate surety bond in the amount of:
100 (i) $50,000 until June 30, 2006, and $75,000 on or after July 1, 2006 , for a motor
101 vehicle dealer's license;
102 (ii) $20,000 until June 30, 2006, and $75,000 on or after July 1, 2006 , for a special
103 equipment dealer's license;
104 (iii) $10,000 for a motorcycle, off-highway vehicle, or small trailer dealer's or crusher's
105 license; or
106 (iv) $20,000 for a body shop's license.
107 (b) The corporate surety shall be licensed to do business within the state and have a
108 rating of at least B+ by the A.M. Best Company.
109 (c) The form of the bond:
110 (i) shall be approved by the attorney general;
111 (ii) shall be conditioned upon the applicant's conducting business as a dealer without:
112 (A) fraud;
113 (B) fraudulent representation; [or]
114 (C) violating Subsection 41-3-301 (1) which requires a dealer to submit or deliver a
115 certificate of title or manufacturer's certificate of origin; [and] or
116 (D) violating Subsection 41-3-402 (1) which requires payoff of liens on motor vehicles
117 traded in; and
118 (iii) may be continuous in form.
119 (d) The total aggregate liability on the bond to all persons making claims, regardless of
120 the number of claimants or the number of years a bond remains in force, may not exceed the

121 amount of the bond.
122 (2) (a) A cause of action under Subsection (1) may not be maintained against a surety
123 unless:
124 (i) a claim is filed in writing with the administrator within one year after the cause of
125 action arose; and
126 (ii) the action is commenced within two years after the claim was filed with the
127 administrator.
128 (b) The surety or principal shall notify the administrator if a claim on the bond is
129 successfully prosecuted or settled against the surety or principal.
130 (3) (a) A surety or principal may not make a payment on a surety bond to any claimant
131 until six months have expired from the date when the first claim on the bond was filed with the
132 surety or principal in writing.
133 (b) After six months have expired following the filing of the first bond claim, the
134 surety or principal shall:
135 (i) assess the validity of all claims on the bond; and
136 (ii) submit a distribution assessment determined in accordance with Subsection (3)(c)
137 regarding the bond proceeds to the claimants of valid claims for approval.
138 (c) (i) If the total verifiable claims on the bond are less than the bond amount, then
139 each bond claimant shall be entitled to the full amount of a valid claim.
140 (ii) If the total verifiable claims exceed the bond amount, then the proceeds shall be
141 distributed pro rata to the bond claimants of valid claims.
142 (d) If the distribution assessment under Subsection (3)(b) is not unanimously approved
143 by the claimants of all valid claims on the bond, the principal or surety shall file an interpleader
144 action in the state district court where the defaulting dealer was licensed.
145 (4) (a) A person making a claim on the bond shall be awarded attorneys' fees in cases
146 successfully prosecuted or settled against the surety or principal if the bond has not been
147 depleted.
148 (b) A surety or principal may not be awarded attorney fees that exceed $2,500 for an
149 interpleader action filed under Subsection (3)(d).
150 (5) (a) (i) If a dealer, body shop, or crusher loses possession of the bond required by
151 this chapter, the dealer, body shop, or crusher license is automatically suspended.

152 (ii) All licenses, pocket cards, temporary permits, and special plates issued to the
153 licensee shall be immediately returned to the administrator.
154 (b) A dealer, body shop, or crusher may not continue to use or permit to be used
155 licenses, pocket cards, temporary permits, or special plates until the required bond is on file
156 with the administrator and the license has been reinstated.
157 (6) A representative or consignee of a dealer is not required to file a bond if the dealer
158 for whom the representative or consignee acts fully complies with the provisions of this
159 chapter.
160 Section 6. Section 41-3-209 is amended to read:
161 41-3-209. Administrator's findings -- Suspension and revocation of license.
162 (1) If the administrator finds that an applicant is not qualified to receive a license, a
163 license may not be granted.
164 (2) (a) If the administrator finds that there is reasonable cause to deny, suspend, or
165 revoke a license issued under this chapter, the administrator shall deny, suspend, or revoke the
166 license.
167 (b) Reasonable cause for denial, suspension, or revocation of a license includes, in
168 relation to the applicant or license holder or any of its partners, officers, or directors:
169 (i) lack of a principal place of business;
170 (ii) lack of a sales tax license required under Title 59, Chapter 12, Sales and Use Tax
171 Act;
172 (iii) lack of a bond in effect as required by this chapter;
173 (iv) current revocation or suspension of a dealer, dismantler, auction, or salesperson
174 license issued in another state;
175 (v) nonpayment of required fees;
176 (vi) making a false statement on any application for a license under this chapter or for
177 special license plates;
178 (vii) a violation of any state or federal law involving motor vehicles;
179 (viii) a violation of any state or federal law involving controlled substances;
180 (ix) charges filed with any county attorney, district attorney, or U.S. attorney in any
181 court of competent jurisdiction for a violation of any state or federal law involving motor
182 vehicles;

183 (x) a violation of any state or federal law involving fraud; [or]
184 (xi) a violation of any state or federal law involving a registerable sex offense under
185 Section 77-27-21.5 [.];
186 (xii) having had a license issued under this chapter revoked within five years from the
187 date of application; or
188 (xiii) having had a bond as required by this chapter revoked within five years from the
189 date of application.
190 (c) Any action taken by the administrator under Subsection (2)(b)(ix) shall remain in
191 effect until a final resolution is reached by the court involved or the charges are dropped.
192 (3) If the administrator finds that the license holder has been convicted by a court of
193 competent jurisdiction of violating any of the provisions of this chapter or any rules made by
194 the administrator, or finds other reasonable cause, the administrator may, by complying with
195 the emergency procedures of Title 63G, Chapter 4, Administrative Procedures Act:
196 (a) suspend the license on terms and for a period of time the administrator finds
197 reasonable; or
198 (b) revoke the license.
199 (4) (a) After suspending or revoking a license, the administrator may take reasonable
200 action to:
201 (i) notify the public that the licensee is no longer in business; and
202 (ii) prevent the former licensee from violating the law by conducting business without
203 a license.
204 (b) Action under Subsection (4)(a) may include signs, banners, barriers, locks,
205 bulletins, and notices.
206 (c) Any business being conducted incidental to the business for which the former
207 licensee was licensed may continue to operate subject to the preventive action taken under this
208 subsection.
209 Section 7. Section 41-3-211 is enacted to read:
210 41-3-211. Unlawful acts or practices.
211 (1) A licensee may not knowingly or intentionally engage in any of the following
212 unlawful acts or practices:
213 (a) provide a financial institution or person being contacted to provide financing for the

214 purchase of a motor vehicle, a motor vehicle contract of sale, document of sale, contract,
215 request for proposal, or other document that does not accurately state:
216 (i) the terms of the motor vehicle purchase; or
217 (ii) if the vehicle is a rebuilt vehicle;
218 (b) sell a motor vehicle to a purchaser that is subject to financing that is not the motor
219 vehicle described in a motor vehicle contract of sale, document of sale, contract, request for
220 proposal, or other document as of the time the contract of sale, document of sale, contract,
221 request for proposal, or other document provided to the financial institution or person
222 providing financing; or
223 (c) make payments on any loan or lease on a motor vehicle subject to a loan or lease
224 that is subject to the payoff requirements of Subsection 41-3-402 (1).
225 (2) The provisions of Subsection (1)(c) do not prohibit a dealer from making one or
226 more loan or lease payments for a motor vehicle if making the payments is:
227 (a) stated in writing in a motor vehicle contract of sale, document of sale, contract,
228 request for proposal, or other document; or
229 (b) stated in the notice to the lienholder of the trade-in of the vehicle as required by
230 Subsection 41-3-402 (5).
231 (3) A person who violates the provisions of this section is subject to the penalties
232 provided in Section 41-3-701 and Subsection 41-3-702 (1)(a).
233 Section 8. Section 41-3-402 is amended to read:
234 41-3-402. Payoff of liens on motor vehicles traded in.
235 (1) If a dealer takes a trade-in from a retail customer as part of the sale or lease of a
236 motor vehicle and there is an outstanding loan balance owing on the trade-in, then the dealer[,]:
237 (a) within 21 calendar days of the date of sale or lease, or within 15 calendar days of
238 receiving payment in full for the motor vehicle it sold, whichever date is earlier, shall remit
239 payment to the lienholder sufficient to pay off the lien on the traded in motor vehicle, unless
240 the underlying contract of sale or lease contract has been rescinded before expiration of the 21
241 days[.]; and
242 (b) shall remit payment to the lienholder sufficient to pay off the lien on the traded in
243 motor vehicle prior to selling or placing the motor vehicle for sale unless Subsection (2) is
244 complied with.

245 (2) (a) A dealer shall, at the time of sale of a motor vehicle with a trade-in, notify in
246 writing the person trading in the vehicle that the person remains responsible for any unpaid
247 loan, lease, or other obligation related to the vehicle being traded in.
248 (b) The person trading in the vehicle must separately acknowledge receipt of the notice
249 and acknowledge in writing the person's continuing obligation related to the vehicle being
250 traded in.
251 (3) The notice and acknowledgment required under Subsection (2) may be combined
252 with an authorization for payoff and shall contain the following:
253 (a) the customer's name;
254 (b) the customer's address;
255 (c) the dealer's name;
256 (d) the dealer's address;
257 (e) notice to the customer that the motor vehicle the customer is trading in is subject to
258 an unpaid loan, lease, or other obligation;
259 (f) notice to the customer that the customer remains responsible for the unpaid loan,
260 lease, or other obligation despite the trade-in of the motor vehicle; and
261 (g) acknowledgment by signature of the customer that the customer remains
262 responsible for payment of the unpaid loan, lease, or other obligation.
263 (4) (a) A dealer shall, within seven calendar days of the date of a trade-in, notify a
264 lienholder on the motor vehicle that the vehicle has been traded in.
265 (b) The notice under Subsection (4)(a) is not required if the lien is fully satisfied within
266 seven calendar days of the date of a trade-in.
267 [(2) A lienholder who has been paid in full by a dealer in accordance with the terms of
268 this section shall deliver to the dealer a properly executed title that releases the lien within:]
269 [(a) one business day after the business day on which the funds are received when the
270 funds are in cash, cashier's check, certified check, teller's check, or other certified source of
271 funds;]
272 [(b) three business days after the business day on which the funds are received when
273 the funds are in the form of a check drawn on a local originating depository institution; or]
274 [(c) six business days after the business day on which the funds are received when the
275 funds are in the form of a check drawn on a nonlocal originating depository institution.]

276 (5) The notice to the lienholder required by Subsection (4) may be combined with an
277 authorization for payoff or a notice to the person trading in the motor vehicle subject to the lien
278 and shall contain the following:
279 (a) notice that a motor vehicle subject to the lienholder's lien has been traded in;
280 (b) notice that the person trading in the motor vehicle subject to the lien has been
281 provided with a notice as required by Subsection (3);
282 (c) the date the motor vehicle was traded in; and
283 (d) (i) a statement that payment for the lien accompanies the notice; or
284 (ii) a statement that payment will be made within the time frame required under
285 Subsection (1).
286 (6) (a) A lienholder shall deliver to the dealer a properly executed title that releases the
287 lien within nine calendar days after the day on which the funds are received if the lienholder:
288 (i) has possession of the title for the motor vehicle; and
289 (ii) (A) has been provided with the notice required under Subsection (4) and has been
290 paid in full; or
291 (B) has been paid in full within the time frame under Subsection (4)(b).
292 (b) A lienholder who has possession of the title for the motor vehicle and has been paid
293 in full shall deliver to the dealer a properly executed title that releases the lien within 15
294 calendar days from the receipt of payment.
295 (7) (a) A lienholder who does not have possession of the title but has its account paid
296 in full by a dealer shall provide the dealer with a written statement that the lienholder no longer
297 claims a lien against the motor vehicle.
298 (b) The statement described in Subsection (7)(a) shall be provided within the time
299 limits required by Subsection (6).
300 [(3)] (8) If the final day for performing an act under this section falls on a Saturday,
301 Sunday, or a legal holiday, then the time for performance is extended to the immediately
302 following business day.
303 [(4)] (9) A dealer's failure to comply with the provisions of this section subjects the
304 dealer to the sanctions set forth in Section 41-3-701 .
305 [(5)] (10) A person who trades in a motor vehicle to a dealer and who thereafter
306 sustains loss or damage as a result of a dealer's failure to pay off a properly recorded lien on the

307 traded in motor vehicle within the time specified by Subsection (1)[(b)], may bring an action
308 against the offending dealer to recover damages proximately caused by the dealer's failure to
309 comply with the provisions of this section, together with costs and reasonable [attorneys']
310 attorney fees.




Legislative Review Note
as of 2-19-10 3:56 PM

Office of Legislative Research and General Counsel