In CA., the registered owner holds the title even if there is a loan/lien on the vehicle. The bank or credit union is listed under, "legal owner" and there is a place for them to sign off on the title as well as a place for the registered owner.
All transactions on private party sales with liens need to be done at the bank or lending institution, that way you can pay off the loan, (or seller pays off the loan immediately before sale), and both "owners" can sign off on the title at the same time. Typically, the buyer will pay off the loan and give the private party seller the difference or change left over. Buyer leaves with vehicle and signed-off title in hand, knowing 100% that it's free and clear.
Doing it any other way is asking for a world of hurt and will lead to starting another thread here titled, "how do I get my title, etc..."
