This is Dave at Consumers Title. Today we’re going to talk about illegal car titles. When you fill out a form or present a form to the DMV for an application for a duplicate title or any other type of transfer, those forms are implied that the statements are correct. In some cases, it’s under oath either by a signature or by statute. That means that what you’re saying you’re guaranteed to be under oath, and there’s penalties for perjury. Sometimes it’s a criminal fine, sometimes they’re civil fines.
Consequences of Incorrect StatementsThe worst-case scenario is that a criminal fine could have long-standing impacts on your personal life. Best-case scenario is the invalid title that’s issued could be revoked if the statements are incorrect. The DMVs do regular audits of paperwork to match up patterns.
Common Examples of Fraudulent TitlesHere are the common examples of where titles are issued fraudulently or through incorrect representations. One is mechanic’s liens. Mechanic’s lien is a legitimate process for certain types of professional companies to get a title: towing companies, repair companies, body shops, storage companies. But in order to have that mechanically and be valid, there has to be a certain process where that vehicle got to the mechanic, had to be legitimately presented to that garage for repairs by the owner, and then the owner didn’t pay for them. If it’s just used for somebody who bought a car that lost the title to get a title, that’s an illegal title.
Skip TitlesThe next example is skip titles, where ownership has been jumped from one to another without proper documentation. Many states are cracking down and revoking titles and issuing tax penalties because of skipped or jumped titles where owners don’t recognize their name on the title.
Abandoned Car ProcessAbandoned car process is another one. Abandoned car title is a legitimate process in some states to get a title of a car that was legitimately abandoned. It’s not designed to get a title for somebody who lost their title, and if the representations are made otherwise, that could be an illegal title.
Salvage TitlesSalvage titles are where a prior repair or damage occurred, and it’s got a stamp on it. Sometimes an individual wants to undo that Salvage title or turn it into some other title brand. Even an attempt to do these things in some cases is a crime, whether you do it or a title agent does it on your behalf under a power of attorney.
ConclusionAn illegal title can have serious consequences for the person who applies for it or even the person who obtains the title at a later date.
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Identifying a Subsequent Asset HolderFirst thing to do is see if there’s a subsequent asset holder meaning that was that lender bought out did they sell their assets to another lender sometimes you can find that online even news articles that say XYZ bank was sold to a BC bank.
Checking for Statutory ReleaseThere may be a statutory release meaning that if the loan was originated more than five or seven or ten years ago by statute that lien is released and you can get that from the DMV.
Using Title Transfer to Erase LienIn some cases the document of title transferred to you will help erase that lien if you can show that the vehicles transfer to you and you can document that the lender or that the seller paid off their loan or if they have receipts that may be something which shows that the loan has been paid and they’re both there therefore that the lender has to give you a lien release.
Obtaining a Court OrderIf they don’t you can get a court order to erase that Lane and then get a clear title in your name.
Understanding “Out of Trust” in Auto DealershipsWhat does it mean when they say that an auto dealer is out of trust on their floor plan? Well, a floor plan is a credit line that a dealership will have for their inventory. Look, if you’re a dealership and you have 200 cars and they’re an average of $30,000 apiece, that’s six million dollars worth of cars, and most dealerships don’t have or don’t want to put six million dollars of their money sitting on their front lot.
How Floor Plans WorkSo what they do is they get a line of credit from a bank. When cars come in—you see the big truck pull up in front of the dealership—every time a car rolls off that truck, the amount for that car is paid from the dealership to the manufacturer on that credit line. The bank just wire transfers the money to Ford or Toyota, whoever it is. The dealership now has it on their credit line. When they sell the car, they’re supposed to pay it off that credit line.
Handling Car TitlesNow, some lenders will hold the titles for those cars until it’s paid off. Some lenders trust the dealership to hold the titles, and when they sell it, they use it to register the car for the buyer. When a dealership does not pay off the car as soon as it’s sold, that violates that trust they have with the bank. That’s what’s called out of trust.
Consequences of Being “Out of Trust”So what happens is a dealership, if they need some spending money or if they’re low on cash or if their cash flow is tight, they’ll sell five or six cars in a weekend. That might be, let’s say, $150,000-$200,000 worth of inventory. They’ll keep that money and not pay off the cars right away. That gives them some float; hopefully, they think that later on, they’ll have that money. But what happens is it becomes a domino effect. The more they borrow, the more they’re out of trust.
Discovery and AuditsEventually, the lender will discover that their inventory’s not being paid off. They’ll come in, audit the store, find out that they’re out of trust, and either shut the dealership down or put them on curtailment, which means that they can’t hold the titles and they have to pay off some of this money.
Dealing with Out of Trust SalesThe reason I’m saying this: if you have a vehicle where the dealership sold it to you and they were out of trust and never had the title from the lender, that’s something you need to deal with. The dealership and sometimes even DMV and law enforcement need to ensure that your claims are handled. Most states have a victim fund that all dealerships pay into that can satisfy the claims from people who have vehicles that are out of trust.
Car Taxes and Title Transfers Very frequently, the question comes up about car taxes and what taxes have to be paid on a car to get a title if the vehicle is being transferred to another person. That’s typically a trigger for taxes due when it is appropriate in that state, and it sometimes depends on whether it’s a private sale or a dealer sale whether or not taxes are due. Sometimes it also depends on whether it’s a new or used vehicle.
Annual Property and Ad Valorem Taxes In some states, they also have a property tax or an ad valorem tax which is due every year for ownership of that vehicle. Be aware that in many cases, the sales tax that you’re aware of in a property transfer is actually a sales and use tax, meaning that not just the sale of the vehicle triggers it but any use of the vehicle.
Statutory Determinations One of the things that will make a determination of this is the statutes for that state and depending on whether it’s new or used or from a dealer. Be aware that the transfer of a vehicle, whether or not it’s done by changing title, is a triggering event.
Jumping or Skipping Titles So if you jump title or skip titles, there may be taxes due for each one of those transfers. And who’s liable for it? It might be the new owner, it might be prior owners; that’s between the different people involved in the car transaction. But a transfer of a vehicle, even if a new title wasn’t issued, might trigger sales tax being due by somebody. So if you’re jumping titles or skipping titles, understand that there may be a tax that comes back to haunt you for an unpaid tax down the road.
So over 20 years of processing car titles, we’ve seen quite a bit happen in the car title replacement service business. People that need lost titles really will do anything to get a title, and that includes allowing a third-party agent to do things it may not be 100% legal.
Changes in Laws and MarketsThere’s been laws that have changed, markets have changed, even the rules that the DMV’s have of handing out paperwork have changed. Some loopholes that existed before don’t exist anymore. There’s dozens of companies that have been shut down that are out of business.
Indianapolis CaseThere’s a case in Indianapolis where one company was using mechanic’s liens to get titles and there were dozens of people arrested. There were hundreds of vehicles that had their titles revoked because that illegal process was used.
Risks of Transferring Titles to Third PartiesSome services require that you transfer the car to them, you sign it over to them, they title it in their name, and then they sell it back to you. They may have a way to title in their name, but you don’t know if that process is legal. And if it is not legal, they own the car. So if they’re shut down or if there’s some claim against them for illegal operations at the moment that happens, they’re going to be the legal owner of your car. And if that is needed to pay for claims or pay for fines or pay for penalties, then your car might be used to satisfy them.
Observations of Illegal SchemesSo like I said, in 20 years of seeing car titles being processed, we’ve observed many, many illegal schemes in all states. Nevada had a couple company shut down, Indianapolis, there’s a few companies in Florida that do mechanic’s liens that no longer do that.
Advice for Car OwnersSo make sure that if you’re having somebody other than yourself process your car title, that you understand the process, that they’re willing to explain it to you in detail before you go ahead and give them your money.
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