Title Washing – When a “Clean” Motor Vehicle Title Isn’t a Good Thing for a Buyer or Lender
Most of the focus after a big storm like Harvey naturally falls on housing. How many people are displaced, how many homes were destroyed and where will these victims now live? However, there are other significant damages in the aftermath that can have a big impact not only on people but on insurance companies and lenders, too. This includes motor vehicles. Coverage of the storm showed an untold number of submerged cars littering Houston-area freeways and roads. Presumably, these cars were totaled by the insurance companies and hauled away to scrap yards, right? Not necessarily. Many newscasts and newspaper stories in the days after Harvey warned viewers to be careful when buying replacement vehicles in the months ahead as many may actually be storm-damaged cars and trucks. Is this legal? The answer is: It depends.
What is a “salvaged” or “damaged” vehicle title?
When a motor vehicle is flooded and repaired, its title typically will be reissued. The car or truck will now be classified as “salvaged” or “damaged” (depending on the title-issuing state). This is to ensure that when the motor vehicle is sold, buyers will know what they are paying for and not be deceived into buying something that is not in pristine shape. There is a considerable market for these types of vehicles and bargain hunters will look for such cars and trucks after a storm in the hopes of catching a good deal. However, not everyone wants such a motor vehicle or the headaches and additional repair bills owning one might later entail.
Today, in part three of our series in roadblocks in the motor vehicle titling process, we’ll examine how unscrupulous title holders and sellers have learned how to avoid having their flooded cars and trucks branded as salvage or damaged. This scam enables them to pass off such vehicles as being in good condition to unwary buyers, minimizing their losses and costing the public millions of dollars. How do they do it? Through a process called “title washing.” Using title washing techniques, the seller can emerge with a “clean” title that does not accurately reflect a motor vehicle’s history. This clean title then allows the car or truck to be sold without the buyer ever being aware he or she is really getting damaged goods. And if that buyer finances the vehicle through a lender, the lender is also stuck with a car or truck that is anything but clean.
What is title washing?
Title washing starts when one state’s DMV examines and labels a car or truck as “salvage” or “damaged.” The dishonest title holder or would-be seller then takes that vehicle to another state, usually one far from where the flood or damage occurred. There he or she get a new, clean title that wipes away the car’s or truck’s history. How can they do this in one state but not another? States don’t always follow the same rules when it comes to motor vehicle titles. While one state issues salvage or damage titles, its neighbor may not. Or, its dollar value threshold to be branded as salvage or damage is higher than where the damage occurred.
Likewise, vehicles recovered from a flood or other natural disaster involving water (such as Hurricane Harvey) can be flagged or branded as “flood” in certain states. However, again, another nearby state may not offer this designation or have a different threshold for what it considers a flooded vehicle. Sellers literally shop around and pick the states that meet their unscrupulous titling needs.
What happens when a title is washed?
With a title washed, or clean title in hand, the title holder can now put this salvaged, damaged or flooded motor vehicle on the market and pass it off as a car or truck in good condition. The buyer and lender will have no idea of the vehicle’s true history when doing a title search and may end up purchasing a car or truck that will give them nothing but problems down the road. Meanwhile, the seller walks away from a sale he or she might not otherwise have made, and most likely at a far higher price than what the car is truly worth had its actual condition been known.
An unwary buyer may be stuck with one damaged car, which could prove costly to them. But, depending on the number of times it finances such motor vehicles, a bank may find itself financing hundreds of thousands of dollars for such damaged cars, greatly increasing its risks. If the buyer later learns of the deception, he or she may blame the lender or even walk away from the vehicle, leaving the lender a pile of junk it can’t then sell to recover its costs.
What can you, as a lender, do to better protect yourself and your customers from unscrupulous title washing efforts? As with a borrower, the more information a lender can gain on a vehicle before a sale, the more prepared it will be to determine if the motor vehicle is a good risk to finance. The U.S. Justice Department has created the National Motor Vehicle Title Information System (NMVTIS), an online database designed to protect states and consumers (individual and commercial) from fraud. All states currently participate in the system, although to varying degrees.
According to the NMVTIS website, the system disseminates “information on automobiles, buses, trucks, motorcycles, recreational vehicles, motor homes, and tractors.” This includes salvage history. Much of the information is updated in real time (as transactions occur); however, other states sends less frequent updates, ranging from once every 24 hours to a period of days.
There are also third-party solutions available to help with motor vehicle title due diligence. Lien Solutions has nearly 40 years’ experience aiding motor vehicle lenders nationwide with due diligence, title processing and title management. We are familiar with the title requirements of each state, including those that are laxer when it comes to labeling cars and trucks as salvage, damaged or flood. We can offer guidance and advice for each step of the titling process. Call one of our experts today at (800) 833-5778 ext. 3 to learn more.