How Dealers Can Commit Title Fraud On Consumers

Title Problems in Car Buying
So don’t think just because you buy a car from a licensed automotive dealer that you’re out of the woods on title problems. There’s a very common scheme that some used car dealers, mostly used car dealers, occasionally a new car dealer will do this that will be a financial fraud that will harm consumers. It’s called floor plan fraud, and not many people know this, but dealerships do not own their cars for cash just like you. Dealerships have a car loan.

The Dealer’s Lot
If you look at all the cars on a dealer’s lot, for example, if you have, let’s say, 20 cars on a used car lot and each car on average is $115,000, that’s $2,300,000 of cars sitting on that dealer’s lot. Most dealers don’t have $300,000 in cash extra or if they do, they don’t want to have it sitting in their cars. So what they do is they get a line of credit that’s called a floor plan or a floor line, and that floor line finances their vehicles for them. So when they buy a vehicle from an auction, from a trade-in, from who knows where, the bank actually writes a check for that vehicle. The dealership doesn’t, and the bank holds the title just like on your car financing.

Selling the Car
When the dealership sells the car, the dealership calls up the bank and says, “Hey, I sold that 2020 Toyota Camry, send me the title.” The bank says, “No problem, send us the money.” So the dealership sells the car, takes the money from the customer, sends it to the bank, and the bank sends them a title, and now they can put it in their name.

Cash Flow Problems
So sometimes what happens is if a dealership is running short on cash, what they’ll do is this: they will sell you a car, that 2020 Toyota Camry. They take, let’s say, $20,000 from you; you paid for the car. Instead of taking that money and giving it to the bank to pay it off to get the title, they’ll just keep it to pay payroll, pay their rent, pay their expenses, whatever. And now the bank is still holding the title. Now you can’t get a new title registration for your car. It’s called floor plan fraud or being out of trust with your lender, and it creates a problem because you have a temporary tag that runs out. Maybe the dealership gives you another paper tag; next thing you know, the dealership goes out of business.

Real-Life Example
In this case, this was in Massachusetts; this is just one example. This happens all the time. 25 people have reported being defrauded by the scheme. 25 people that say reported police determined that Edward Secui, 46, allegedly receives cars on loan from a local auction but does not get the titles until he pays the auction in full. So the auction in this case is the lender. The cars are then sold at the dealership; he completes the sale, takes the payment, attaches fake or forges license plates, and promises the title will be mailed—of course, which they never do.

Victims Left Hanging
SEC stops responding to the victims and never pays the auction. The purchasers never receive the title, cannot register the vehicle because the auction company still owns the vehicles. They are in the process of repossessing them. So the lender can actually take the car from you even though you paid for it. Now if it’s a small used car auction, they might go through with that. Sometimes if the floor plan lender, the bank that lent the money, is a larger lender like, you know, Wells Fargo or Chase or somebody like that, they might not take a car from a consumer who knows they could legally. They have the right to, but they may just pursue it against the dealer.

Protecting Yourself
So how do you protect yourself against this? What we recommend doing if you’re buying a used car from a dealer, obviously they can’t hand you the title because they’re going to do the registration and title paperwork. Even if you’re financing the vehicle, go through your own bank. Have them show you the title. Just say, “Hey, before I do this deal, show me you have the title.” If they don’t have the title in hand, tell them that you’ll come back and pay for it when they have the title in hand.

Ensuring a Smooth Transaction
Here’s what they’ll have to do: they will have to pay that floor plan lender for the car before they get your money, and then they’ll get your money to cover where they got the money from. They might say, “Well, we can’t do that.” Well, guess what? If they can’t do that, if they don’t have enough cash in the bank for one car to cover one car, do you want to do business with them? So if they can’t show you, just flash the title. They don’t have to give it to you; they don’t have to sign it to you to show you they have it in their hand. We don’t recommend buying the car and tell them, “Well, it’s at a floor plan bank.” No problem, go pay it off, get the title here, and then I’ll pay you for the car, or I’ll sign loan documents for the car, whichever you’re doing.

Avoiding Floor Plan Fraud
You don’t want to leave that to chance. Remember, we’re talking about your hard-earned cash you saved up for this vehicle, or even if you’re financing the vehicle, your hard-earned cash that you have to pay for it. And don’t think that if the bank doesn’t give a title that you don’t have to pay for the vehicle. If you finance the car through another lender, whether it’s your own bank or through the dealer, that lender you signed a contract to pay off the loan even if you don’t get a title or the bank doesn’t get a title, you still have to pay the loan because they paid the dealer.

Red Flags and Final Thoughts
So you don’t want to have your money at risk by having a dealer that doesn’t have a title. The dealer might say, “Well, we don’t have the title on hand because it’s at the bank.” Hey, no problem. Just pay off the bank, get the title, and I’ll pay you for the car. If the dealer is unable or unwilling to do that, it could be a red flag that they don’t have that much cash laying around and they’re running tight, which means you know that might be a decision to make or that they’re trying to scam you.

Conclusion
So don’t fall for floor plan fraud. This, you know, is one example of an article where this happened here recently in Massachusetts, but this happens all the time. Dealerships going out of trust, dealerships leaving people holding the bag. This is a way you can avoid it as an informed consumer. If you like this reading, be sure to click on a few others on our channel to see if there’s other information that might be helpful to you about this same subject or maybe even other related subjects that could assist you with your resolution of your issue.

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