How to get a lien release for my car when the dealership committed fraud and filed for bankruptcy protection?

First, I apologize for the length of this description, but I assure you it is extremely unique situation.

I purchased a car in November 2009 from a smaller local (but reputable) import dealership in Minnesota, where I live. I traded in my vehicle and financed through a credit union. My paperwork from the dealership clearly states that there was no existing lien held on the vehicle at the time of sale.

I received a notice in the mail about 4-5 months later (Apr/May) that the dealership had filed for bankruptcy, but didn’t think much of it. In June, I received a call from a different credit union stating they had a lien on the vehicle when it was sold to me, and that the dealership never used the funds from the credit union that I financed through to pay the original lien holder and get a lien release.

Furthermore, she told me that since the dealership had filed for bankruptcy protection, that they were now coming after me to collect the K still owed to them, threatening to repossess the car if I didn’t sign a contract with them. Obviously I already had a contract with another credit union and didn’t want to agree to pay anyone else, and around the same time I discovered there was a criminal investigation being conducted for fraud against the dealership. I submitted a testimony to the police and reached out to my credit union, but that resulted in a bunch of back and forth between both credit unions, each saying they wouldn’t "eat" the cost of their respective loans. I knew this was going nowhere fast so I started looking at legal action. There were a number of creditors in line with "priority", so any insured funds to pay off creditors was given to those creditors.

The only option I have found is basically filing a claim with the district court to have a judge basically negate the existing lien on the vehicle and wipe it clean, so that the only lien would be with the credit union I signed an agreement with. However, this is going to cost me a 2 filing fee, and a stack of paperwork and notificaitons that need to be sent to the Commissioner of the Dept of Public Safety, among others. Not to mention much of the paperwork is in legal speak, so it’s difficult for me to complete on my own. I could hire a lawyer, but then the costs will continue to stack up so I was hoping to avoid this.

I’ve thought about approaching the original lien-holder again (almost a year later now) and explaining to them that one way or another I was going to get their lien released, whether through the court system or the easy way, meaning they would agree to release it and eat the cost. However, I’m concerned that this will "remind" them to try and have the car repossessed so that they can quickly re-sell it to recoup their costs.

Does anyone have a recommendation for options other than what I’ve outlined above? I hate this feeling of knowing I couldn’t sell the car even if I wanted to, and that it could technically be repossessed at any time, all because of dealer fraud and poor transaction management by the credit unions. Any advice is much appreciated!

Nate

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