"When you sold your car did you pay of the lien? If not, the new owner should have officialy taken over the payments and that way the title legally should have changed hands and the car be registered in the new owners name."
*** WRONG!!! The lienholder keeps the REAL (negotiable) title until such time as the debt is paid. The reason this is done is that the lienholder has a security interest in the vehicle, as stated in the agreement between the lender and the borrower. The borrower CANNOT sell the vehicle (and thereby transfer the 'security') without a release of the lien FIRST.
"By the way, was there a papercontract or just a handshake? Less it was done the legal way and you have a written contract, the car is still in your name and you will be liable if anything happens."
*** Not exactly true. Most states provide for several 'legal' ways to record the sale of a car, including a simple bill of sale. If anything were to happen to the vehicle during that time, the seller can show the purchase by the bill of sale and/or receipt.