They send you a lien release, but the title is goes to you from the beginning. The title has a note that there is a lien on it, so if you buy a car with such a title you need to ensure you get the lien release with it. You cannot transfer a title with a lien notice on it without the lien release (I assume there is a way to assume the loan as well, but I've never heard of it happening. Most loans wouldn't allow that, so it is probably a technicality that the government wouldn't know how to handle if you actually did attempt that)
It's a pain in the ass, because you just hold a title that you can't do anything with. You have to physically get the lien signed off the physical title before you can sell it. That's why many states have switched to either electronic titling, or having the bank hold the title until they sign it off.
Depends on the state, in many states the lienholder retains the physical copy of the title to prevent a fraudulent sign-off on the lien being used to sell the vehicle. In a lot of these states they actually don't hold the physical copy because the DMV allows major lienholders to use electronic retention. In this case, when you pay off the loan the DMV actually produces a physical title for the first time so that the lienholder can mail it to you. The lienholder isn't interested in having filing cabinets full of title certificates to keep track of.
That said, physical possession of the paper doesn't really matter to ownership---as electronic retention demonstrates. The owner listed on the title is the owner regardless of who has the paper, and the DMV's electronic records are far more important than the paper certificate (you can just get the DMV to print a new certificate from their records, but of course they'll charge a hefty fee and policy usually prevents doing so when there's a lien).
The physical possession issue is just around the ability to fake a lien release signature and sell the vehicle. For the same reason some buyers won't accept a title with a signed-off lien and want a new "clean" title printed by the DMV first, but others will just verify the sign-off. Dealers usually have direct access to query DMV records and can check whether or not a lien sign-off is genuine that way (relase of lien is reported to the DMV by the lienholder), but private party purchasers don't have such an easy way to do this and are more vulnerable to this kind of fraud. Multi-sale title certificates that have sales logged on the back are also regarded as suspicious by a lot of buyers, and they'll want a new clean one.
That said, I think the GP here is making a big assumption about how courts would interpret the situation. A lienholder has the right to repossess the vehicle as is, by sending a tow truck. Whether or not a court would interpret "remote repossession" as somehow changing the fundamental nature of ownership is an open question and I'm pretty skeptical. It's already not that uncommon for lienholders to install GPS tracking devices with fuel pump cutoff, in which case they have a more limited degree of remote control of the vehicle, and I've never heard of anyone thinking this changes the fundamental owner-lienholder relationship. I just don't think this idea about transfer of liability really holds any water.
