One way to get out of a lease is to sell the car to a dealership or another private party. In California, the huge advantage of leasing over buying new, if you aren't going to keep the car for a long time, is that you don't pay the full amount of sales tax up front, rather you pay over the course of the lease. (for a primer on leasing, see my Lease Primer) If you turn the car in at the end, you only have paid sales tax on the part of the lease you used. If you sell or trade in the car early, you can potentially save a bunch on sales tax... if only it were easy.
However, selling a leased car to a private party is not easy, in California. You (or the 3rd party) pay off the lease with the lien-holder, and you sign the title over to the new buyer. This sounds simple, but California is really worried about not getting their fair share of use tax. In California, the DMV says you have 10 days to do the transfer, or you owe sales tax on the buyout price. In reality, 10 days is not a very long time, when you're dealing with a finance company across the country from you. It's nearly impossible to get the paperwork done in the time the DMV requires, and it's worse if the person isn't within range of going to the DMV with you.
Then, you have the danger of selling a used car in the first place - you need to make sure you get real funds (no fake cashier's checks or other scams). If you can sell it to someone local to you, this is relatively simple, I will go with the person while they get a cashier's check at their bank. Then, you go to the DMV (or CSAA/AAA) together, once the title arrives - you can sign it over at the DMV and the DMV collects sales tax. But, between that time... (and it takes 1-3 weeks for the CA DMV to generate a title.) But, what if you want to do it out of state? Or even far enough away where the person can't sit for 2 hours at the DMV with you? (like 99% of normal people).
The situation is way worse when you want to sell a leased car out of state. Various DMVs around the country have informed me that you cannot take a CA title with LSE and LSR fields on it, and register it to a 3rd party. Even California normally wants you to get a "clean" title in your name, without the lien-holder to sign over to the new party. But, guess what? In order to do that, you've got to pay sales tax! If you want to sell the car... that is a no go.
I had assumed, like most people, that if a 3rd party paid off the loan, they'd be able to receive the paper title from the finance company and use that to register it. We'd done the deal with the buyer paying off the finance company directly, with instructions to send him the title. We used California REG-262 to record the deal. When I confirmed the finance company had received funds, I authorized a shipping company to pick up the car and deliver it to the new buyer out of state. I got a receipt from the shipping company. Things looked to be ready to go... until the buyer went to his local DMV and they told him they couldn't process the title sent to him. Unfortunately, with the LSE and LSR on the title, his local DMV wouldn't give him a local title, despite the supporting documentation (Bill of Sale and notification of release from the finance company, and a bill of sale from me!)
He sent the documents back to me to try to resolve here, in CA. I tried calling the DMV and pointed out the paradox - if I were to wait for a clean title to come in the mail, it's not possible to complete the transfer in 10 days AND I couldn't receive a clean title without paying tax, despite the 10 day grace period. They said, "Sorry, too bad. Pay sales tax."
Not particularly helpful. Luckily, the Board of Equalization, who is actually responsible for collecting taxi n California, was much more helpful when I asked. First off, a government agency that answers the phone with a real person who is actually going to help you out? Awesome. Second, the woman I spoke to was the nicest person I'd spoken to all day. I explained my situation and it worked out for me, but it was an interesting predicament.
Since we had consummated the sale, exchanged funds, and had a dated bill of sale, and had shipped the car out of state, CA was no longer interested in collecting sales tax (use tax really) on the sale, because it went out of state. Because of this, you can, even as a private party, fill out a BOE-106 form to request a BOE-111 form which allows you to receive a new title for the express purpose of transferring it to someone out of the state. It took about a week and a half to turn around the BOE-111, and I received it in the mail, and took it to AAA, who sent it off to the DMV for processing. That should get me a clean title which I can sign over to the new owner who can finally register his car.
This whole process is broken, though. It requires an extremely patient and understanding buyer, since they won't be able to officially register the car in their name for quite some time. First off, the REG-262 from California needs to be original - get one from DMV or AAA or request the DMV mail you one. Then, it can take 4-5 business days, for the finance company to get a paper title to you, and 1-3 weeks if the finance company is California-based and/or can use electronic titles, since the CA DMV has to generate a paper title. In theory, simultaneously, one can fill out a BOE-106 for the BOE-111 form, but the supporting evidence likely won't be there. Then, one must wait in line at the DMV or AAA and turn in the BOE-111 with the title from the finance company to get a clean paper title with just your name on it to send to the buyer. This means waiting for the DMV - another 1-3 weeks. If worse comes to worse, you may be looking at a limbo time of 8 weeks to transfer the title!
It looks like it worked out and I didn't need to pay sales tax on the balance of the car, but it required a lot of hoops. You can see why the path of least resistance is to just sell it to a dealer or trade it in on a new car.
Silicon Valley Dad, who loves cars, cooking, clothes and cameras