Can someone explain how this works?

OP's niece takes on the liability as the owner (ie she hits someone and causes harm her insurance doesn't cover), but OP retains legal claim against the property, preventing someone else from obtaining it through a legal judgement or similar proceedings.

Right, if it gets taken away it gets given to me as the senior lien holder. For best legal protection, I should loan her money with some nominal interest rate.

A distant family member did this on the house of one of their kids, and it saved them from losing it in a foreclosure. The other lender was so angry with them for refusing to release their lien; but they couldn't legally force them to do it.

How does this work with an asset the size of a house? Does having as little as say $5,000 in the house when the the other lender has $200,000 in give you this power to stop foreclosure?

Maybe not stop it, but make it a really big pain. They'll need you to sign off on court filings, etc. If you're obstinate, you can certainly encourage them to "deal with this house later".

Don't house loans require an upfront disclosure of leins against the property?

Yes. There might be a state where someone holding a lien on a house can prevent a first mortgage holder from foreclosing, but I'd certainly recommend someone talking to an attorney before trying this.

This would only work in an "easy money" period, during which loan originators are eager to ignore lending standards on second mortgages. Such periods will come around again, though.

So you're paying cash for the car? If there's no loan, who exactly is going to take it away?

Any creditor you can’t pay who goes through the trouble of getting a judgement against you. This could be a credit card company, a healthcare provider, anyone you owe money to but can’t afford to pay.

It doesn't. Bankruptcy courts and courts in general are pretty wise to the idea of "debts" and dubious last minute transfers to family members, close relatives, and so on. This guy is definitely not the first person to think of the idea.

Correct. You can't magically draft a senior lien. Unless it's a house in an HOA in a super lien state. Or you're the government and taxes are owed. So there are some instances where a senior lien can be recorded later, but an outstanding auto-loan - not that I'm aware of.

Skirting what's owed, playing games with manufactured leverage, getting repossessed - these are all the factors that cause people with lower credit scores to pay a lot more for their loans.

You can't do it (unless it's a mechanic's lein) if there's already a lein on the title.