paid off loan, but bank won't release title or lien.

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Hi, I've got an issue.

About a year ago, I cosigned on a loan with a friend to get a boat. This past week I talked to the bank and found that I could get the title from them by paying off the boat, so I went in yesterday, paid the boat off after confirming I'd receive the title on the same day. (As I have potential buyers lined up). However after taking my cash, they asked me to call their collections department. The bank is now holding the boat and not releasing the title or lien on it. Their reason is that my friend has unpaid debts that haven't been paid consistently.

They told me they applied the payment to the boat and it's notated on the receipt, but I still have to follow up and make sure they did just that. I don't want them to apply my money to my friend's loan and then hold me accountable for the loan I intended to pay off.

Now, my question is, can they do this? Can they hold the title/lien to the boat, after I've paid it off? They're wanting to use it as leverage or they're wanting to use it to cover the costs of the other loan. In either case, I've paid settled my loan with them and was given every impression I would be given the title.
I suspect if you read the note closely, that they are allowed to do this.

Still, it wouldn't hurt to try negotiating with the bank.
should I ask to see a copy of the note and read through it?

Is the action they're taking entirely legitimate?

I've double checked and made sure they applied my payment to the boat. I also found out that they applied a previous payment I'd made to my friend's loan instead of the boat, but I'm not sure if I can do anything about that, and it's a small amount of money compared to the payoff of the boat.

Do I have any leverage at all? or is it entirely up to the bank what they want to do?
Ask them for a copy of the note.

Then write them a certified letter, return receipt requested, asking for the release of the lien.
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