What documents are needed to sell a vehicle?

So if you’re selling a motor vehicle that belongs to you, what are the documents that you need to transfer that vehicle to a new owner? I’m going to go through a list of five or six documents that you will need to transfer that vehicle to the buyer.

Vehicle Title
First, you’re going to need the vehicle title. This is a legal document issued only by a government agency that declares that you are the vehicle owner and that it shows the vehicle identification number. This vehicle title is issued in most states by a division called Department of Motor Vehicles or Department of Transportation. It’s a state-issued government document. They’ll have your name printed on the front, the VIN number, year, make, and model, and it’ll have a place on the back of the title that you sign, indicating the name of the new owner. It’s very important that when you sell that vehicle, you sign that title in the correct location and put in the name of the buyer. Don’t just sign it blank; that’s called an open title. In many states, it’s actually illegal to issue an open title, and if you sign the back of the title, hand it to the buyer, and they show up at DMV or something happens improper with that title, you may have liability. So make sure that you sign the vehicle title over, you put the name of the buyer, you put the date. Many times the title for that state will have a place you need to put in the mileage of the vehicle at the time of transfer, and some of them even require that the buyer signs that title at the same time. We also recommend that when you transfer that title, you take a photo of that title front and back after you sign it so you can prove that you signed the title and put the buyer’s name on it. If possible, get a copy of the buyer’s ID. The title is the most important document.

Bill of Sale
Document number two that you’ll need is a bill of sale. A bill of sale will determine what are the terms of that sale. It’ll show you the date, the amount paid for the vehicle, if there’s any conditions: is there a warranty, is it as is, is it for parts only? Make sure that you write up a bill of sale for the transfer of a vehicle. Now, a bill of sale in some states requires it to be notarized; in some states, it can just be handwritten on the back of an envelope. The format of a bill of sale is determined by the rules of the state where the vehicle is being transferred. Make sure that you abide by those rules. In fact, even if your state doesn’t have specific requirements for a bill of sale, we recommend getting a generic bill of sale form that you can download from the internet, print it out, and make two copies: one for you, one for the buyer. The buyer will need that document when they go to put the title and registration in their name, but you also want to have a copy in case you need to prove how much was paid for the vehicle, what the buyer’s terms and conditions were. You don’t want to have a bill of sale only be one copy that the buyer has, and they handwrite in a 30-day warranty or write in something on the document. Make sure you have two copies that you retain, one for your records.

Odometer Statement
The third document is an odometer statement. At the time of transfer of a motor vehicle, the federal government normally requires that the mileage on the odometer be recorded at the time of sale. Some states require it to get a new title. Make sure that you properly execute an odometer statement. If there’s any question about the mileage on the odometer or what the reading is, if it’s over 100, over 200, that you notify or you note that on the document. There’ll be a place for TMU or true mileage unknown. That odometer statement becomes a record of that vehicle mileage history, and you want to make sure that’s done correctly.

Lien Release
Also, at the time of transfer, you may need a lien release. If there is or was a lien on the vehicle from a bank or from a financial institution, make sure that you have a release document from that lienholder. The title normally cannot transfer or not convey to the new owner unless you have that valid lien release. So if there’s any question about a lien, make sure you have that lien release so your buyer doesn’t come back looking for you later for paperwork.

New Title Application
The last document that we normally recommend doing at the time of sale is the new title application. This is the form that’s filled out by the buyer to submit to their DMV, their titling division, to get a new title issued in their name. Look, a vehicle title doesn’t stay the same throughout history; a new title is issued every time a new owner purchases a vehicle. So make sure that the proper title application is prepared. Even though the buyer could theoretically do that on their own, if you fill it out so it’s correct and you give it to the buyer, sometimes that’s helpful because the buyer will know what they need, and you might need to sign that document as well. So having that document prepared at the time of transfer can help speed up the process, and it will put you in a position of not having to deal with that buyer later if they run into problems.

Notice of Sale
Last but not least, as a bonus, some states have a notice of sale which is attached to the title where you can actually fill out a form and submit it to the DMV yourself to tell the government agency that you are no longer the owner of that vehicle. That could help you for liability purposes. Look, if something happens with that vehicle right after you sell it, two days later, it’s involved in a hit and run or goes through a stoplight or does something that’s illegal, you don’t want the DMV coming back and chasing you down thinking that you did something wrong. So make sure that you submit that ownership transfer. Don’t wait for the buyer to do it. Maybe they want to sit around for two months so they don’t have to pay the fees or sales tax or they’re going to work on it for two months. You want to make sure that vehicle gets out of your name as soon as possible so you don’t have liability purposes.

Conclusion
Remember, we are not attorneys. We’re not giving you legal advice. If you need more detailed information about the legalities of a title transfer, contact the DMV or a qualified automotive attorney. These are just things that you want to be aware of when you’re buying or selling a vehicle to make sure you get the paperwork right so you don’t run into problems later from a seller’s standpoint or a buyer’s standpoint.

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Salvage Title Insurance, Inspection, & Financing Restrictions

So you’re looking at a vehicle that has a salvage title. Maybe you’re buying a car at Copart Auto Auction or IAA, and you are gonna maybe fix that car up, maybe repair it, and you want to put it on the road. What about insurance? Is that vehicle eligible for insurance? A salvaged vehicle, when it’s completed, becomes a rebuilt title, and there are some insurance considerations that you need to take a look at. So let’s see what that process is like.

Checklist for Getting a Rebuilt Title
Here is the checklist of what you need to do to get a rebuilt title for a salvaged car. First, you have to get the vehicle inspected by a private mechanic. You want to do that first because that won’t give you the authorization to get a title from the state. But before you go to this state government inspection, you want to have a private mechanic make sure that it’s ready to go because if you go to that inspection and it fails, your next inspection will be much more intensive, and you might have to wait another month or two. Sometimes they require you to wait 60 days for a second inspection, so you want to have the vehicle checked out outside of the government system first to make sure it’s good to go.

State Inspection Requirements
Then you’re going to have to bring it for that state inspection. Different states have different criteria. Many times, however, in addition to the physical condition of the vehicle being acceptable, you also have to have documentation of the repairs. Just because, let’s say, you fixed a fender and adjusted the suspension, and the car is good to go, you have to have receipts for all your major component parts and also proof that all of the items in the original salvage claim have been rectified. Many times the state inspector will go back to that original insurance claim, which they can access through their insurance database, and see what the original repairs of the vehicle were, and they’re going to make sure that it was done properly and that you have receipts for it. If you don’t see any repairs needed to get done, it may be that it was a flood car or recovered theft, and that makes it more complicated.

Obtaining the Rebuilt Title
Once you get that inspection passed, then you get a rebuilt title from the DMV or your state titling agency.

Insurance Challenges with Rebuilt Titles
Here’s the problem: when you go to buy insurance, some insurance companies do not insure vehicles that have rebuilt titles. Even the ones that do sometimes only give you minimum liability; they don’t give you comp insurance, right? So that may be a downside to having a rebuilt title or salvage title. Make sure you know in advance what insurance is available, and if your carrier doesn’t offer it, you may have to contact a different insurance carrier. They may put limitations on your coverage, so if the vehicle is subsequently damaged, you may not be able to recover all of your losses on a salvaged vehicle.

Impact on Resale Value and Financing
This can also hurt resale value because buyers in some cases can’t get insurance. If you have a later model vehicle that would need to be financed, some finance companies also don’t finance vehicles that have a prior salvage or rebuilt history.

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VIN Vehicle History Search Instructions – Full Access

So how can you run a VIN search or vehicle history on a motor vehicle in the United States? There are several different methods to do this, and each one of them has some pros and cons. You want to make sure that the type of search you’re doing matches the kind of records you need. For example, you may want to know about liens, salvage, back taxes, or stolen vehicles, and each one of these is going to be searched in a different way.

Legal Restrictions and Exemptions
First of all, be aware that some vehicle information is protected under federal law called the Driver’s Privacy Protection Act (DPPA), so some information you’re not going to get unless you run a certain type of search that bypasses the DPPA using an exemption that you can apply for. Depending upon if you’re looking to find out the history of the vehicle, the last owner’s name, things about liens, or things about salvage, there are a couple of ways to go about doing it, and we’ll look at both of them.

National Motor Vehicle Title Information System (NMVTIS)
First of all, there’s a federal database called the National Motor Vehicle Title Information System (NMVTIS). You can get a link to that from our website car-titles.com, where you can actually do a search directly through the NMVTIS through our website and get the results from that search. Those results come instantly when you perform that search; it’s online. You’ll get a printout of that vehicle history. It’ll have information about the last titled states, the dates, and the registration. Many times it’ll show where the vehicle was sold last if it was a retail transaction. It’ll, in many cases, have information about any claims against the vehicle like insurance claims or salvage prior repairs. It might even show things like lien holders. In some cases, you’re going to find recalls on the vehicle and repairs, which is important to know.

Limitations of NMVTIS
So NMVTIS (National Motor Vehicle Title Information System) is a good place to start. Now keep in mind that there are many online VIN checker, VIN report type services that might run some electronic search, but it might not be much more than just a Google search. You want to make sure that whatever search you’re doing uses the NMVTIS as the source because any other source of records is not going to necessarily have all the information you need. Now, remember that there’s some information that’s not allowed to be sent from the NMVTIS, like the name of the prior owner. In some states, liens aren’t even recorded on the NMVTIS, so if you want to know about liens, you have to run a different type of search, and we’ll look at that momentarily.

Checking for Liens
You’ll see that on the NMVTIS search report there will be a section that will say liens, and most of the time, it’ll say no liens. However, if you look at the bottom in the small print, it’ll tell you that liens aren’t always reported; it’s not 100%. So you could buy a vehicle and have an NMVTIS printout from the internet, from online, it’ll say no liens, and you can find out later that there’s a lien. So if you want to get 100%, now you’re going to use the DPPA driver’s request form.

DPPA Driver’s Request Form
Let’s take a look at that. This is a different process where you’re actually submitting a request directly to the titling authority in the state to get an actual vehicle history report. This is the actual records on that vehicle that are held by the government. It’s not an electronic database push-a-button Google search type thing. It’s done using actual paper documents. Every state has a different form to request this. The form you’re looking at happens to be from the state of Wisconsin. It really doesn’t matter which one we’re looking at because the information is going to be the same, and here’s why. The requirements for the DMV or titling authority or in this case Department of Transportation in Wisconsin to release that information all come from the federal law, the Driver’s Privacy Protection Act. So every state has to abide by that act, and we’ll take a look at what those requirements are.

Requesting Vehicle Records
Here’s the authorization section, section C. We’ll get to that in a minute, but the form itself is going to have some basic info. It’s going to have the name of the requester, that’s you, who’s requesting this information. Here’s why: you cannot do this anonymously. You can’t just do an anonymous search for the record. They have to know who’s receiving these records because they consider this to be very private and protected information, so they want to know who’s getting it. They’re going to keep a record of that. They’re going to get your driver’s license number; that’s how important this is, your address, mailing address, and then it’s going to ask you about what vehicle records you want.

Form Details and Costs
This form allows you to put in three vehicles: year, make, VIN number goes here in this section. If you know the plate number, you put it there. If you want to know about the current owner, you check this box. If you want to know about the history of owners, you check this other box. So look how powerful this is. Not only will it tell you about the current ownership records, it’ll give you a records history on the vehicle, very powerful. What does it cost? Well, you can get a non-certified copy for five dollars, pretty cheap. Most states have a fee of anywhere between five or ten or fifteen dollars depending on the state. If you want it certified, it’s only ten dollars, right, so it’s not that much more.

Authorization Process
But what is the process? Well, here is your authorization. Please check the statement below that allows you authorization to obtain personal information, and you’re going to notice there are 13 authorized uses or permissible uses. Some forms you’ll see seven, some you’ll see 12 or 13. The language for these authorized uses comes exactly from the federal law, the Driver’s Privacy Protection Act. So you can look at Wisconsin or Alaska or Alabama or Michigan, these wordings will all be the same, and they’ll even be in the same order usually. So you have to pick out what gives you the right to get this information. Now, your scenario may be different; there’s almost always going to be one on here that will give you the right to get this information, and we’ll look at each one individually and what they mean and why they might apply to you momentarily. But you want to make sure you’re picking the right one because if you pick the wrong one and you’re not authorized, you’re not going to get the records, okay, because they consider this private information.

Privacy Considerations
Car ownership is not public records. It’s not open records like even real estate or open records. They consider this to be just as private as things like your bank account or your credit report. Ownership records are very, very private. Why is that? Well, think about it. If you’re driving down the street and somebody doesn’t like the way you drive, and they follow you to a parking lot, they write down your license plate or your VIN number, which is right in the dashboard, and they want to find out where you live because they didn’t like the way you cut them off. They could just ask for the information, come knock on your door, and who knows what’s going to happen. So there were some very high-profile cases of stalking and other things where they passed this law back in the 90s, so it’s good that it’s private. So you have to jump through a few hoops to get it.

Authorized Uses for DPPA Information
So let’s look at the reasons that allow you to get this information and which ones apply to you. Authorized for use if they have demonstrated they have the written consent from the owner. So if you have written consent from the owner to get the information, then you can get the information. If you had that, they would probably just give it to you, so that may not apply to you, but it’s good if you are requesting your own record or a minor child and you’re the parent or another person, and you have their consent. Maybe you’re an insurance company or an employer that’s getting this, so that’s number one, that doesn’t apply to most people.

Specific Uses and Scenarios
For use in connection with matters of motor vehicle safety, emissions, and alterations. This is where the factory needs to contact owners because of a recall or because of some other purpose of vehicle ownership. So if, let’s say, some car manufacturer, let’s say Ford, finds out that, you know, a couple hundred thousand Ford F-150s are missing a bolt, they can contact those people by looking up the VIN numbers. Number three is if you’re a government agency, for the purpose of government agency to carry out its functions. Well, if you’re a government agency and you need the records for something, you can get it. A federal court for the purpose of the court to carry out its functions. Well, that’s probably not you either. A law enforcement agency for the purpose of law enforcement to carry out its functions. Well, you’re probably not police either, but look at what it says, for the purpose of carrying out its functions. What that means is if you’re a police officer, you can’t just pull up a VIN number for anybody on your own on a whim. You have to declare that you’re using it for law enforcement purposes, and FYI, there’s been many police officers that have used this power that they have improperly, gotten a record for some other reason, personal reason, dating, whatnot, and gotten in trouble, so that’s the thing to keep in mind.

Employment and Legal Uses
So let’s talk about number six, an authorized representative employed by a company that’s getting a driving record to verify the accuracy of information by a person, so to correct information. So if you are a company and you have drivers that are applying for a job or that are on the road, you can use this information to fix that. Now, number seven works in a lot of cases, authorized for use in connection with any civil, criminal, administrative, or arbitral, like arbitration, proceeding in any local court or before any self-regulatory body, including service of process, investigation in anticipation of litigation, in the execution of enforcement of judgment. So if you are anticipating litigation or doing investigation, this may apply to you, number seven. So read that carefully. Remember, we’re not attorneys, we’re not giving you legal advice, we’re just reading what’s on the form and how it might apply to different people.

Research and Insurance Uses
Number eight is authorized for use in research activities for statistics as long as the personal information is not published. So this is more for finding out how many red Honda Accords are in this ZIP code. This isn’t really what most people are looking for. If you’re an authorized representative by an insurer or an insurance company, so insurance companies many times need to look up driving records or accident records on a vehicle in order to give you an insurance policy, that makes sense. Authorized for use to provide notice for towed or impounded vehicles. Well, maybe that applies to you. Maybe you have an abandoned vehicle on your property or an impounded vehicle that you need to notify the owner or contact the owner.

Private Investigator and Employer Uses
Number 10 may apply in your case, authorized representative or owner of a licensed private investigative agency or security agency requested for the purpose permitted under the DPPA. So if you’re a licensed private investigator, you can look this up if you use it properly. Employer or agent to verify information of a commercial driver’s license. Again, if you’re a trucking company, you need to make sure your drivers are not sketchy, you can do that. Or private toll facility for operating the facility. You know, you’ve seen a lot of toll companies that charge you automatically if you go through a gate or parking or that kind of thing, and that allows them to look up the owner if you don’t pay your toll.

Legal Implications and Enforcement
So those are the reasons. If you do not meet one of those reasons, you cannot get the records. In fact, it says right here the Driver Privacy Protection Act (DPPA) is enforced by the U.S. Department of Justice (DOJ). It’s no joke. That’s a very serious organization which may seek civil and criminal penalties for improperly obtaining, disclosing, or using information from a motor vehicle record for purposes not permitted by the DPPA. In addition, private citizens may seek civil damages. So if you use the information improperly and you harass somebody, they can sue you. Please be specific in describing your request and attach additional pages if needed. So this is Wisconsin, but remember, every state is going to have almost exactly the same wording because this wording, one through seven or one through thirteen, comes directly from the DPPA, the federal law.

Comparing NMVTIS and DPPA Searches
So why would you want to do this instead of doing just an NMVTIS online database? Well, go ahead and do one of these online databases. Go to our website. You can order one of these NMVTIS reports, and what you’ll find is you’ll have some information, but it’s not going to have the name of the owner, it’s not going to have the name of the lien holder, or have their address. Some states don’t report everything to NMVTIS, so you might find that, you know, if the car was last in Alabama, it might not be there, or it might not go back far enough. It’s a basic electronic database report. This DPPA is a full documented report.

Summary and Final Recommendations
So the downside to this is it takes longer. This you can get instantly, push a button, pops up on your screen. This you have to sign this form with the fee and either mail it in or bring it to the DMV, and they normally don’t give it to you on the spot. They might have to mail it to you in a week, so it’s not instant, and it’s also not 100% that you’re going to get it. They might reject it. So how do you go about doing this? Well, run this first, run the NMVTIS first, and at the same time get this form. And for all of our clients, we provide this form for you to access this for any vehicle that if you order from us, we provide the form for you. If you fill out this form and send it in, if you bring it in person, you might be able to get it on the spot. If not, they may have to mail it to you. You’ll get the different additional information later. So use both of them for the purpose that you might need it: to contact prior owners, to clear liens, to find lien holders, to look for other records that may not be available. Maybe it was titled in one state and registered in another. Maybe there’s additional owners. You might want to run this in advance of buying a vehicle to make sure you know who you’re buying it from.

Conclusion
But the full vehicle title search process is sometimes hidden because you’ll see this online NMVTIS. There’s a million companies that say, “Hey, give us five bucks, we’ll give you a title report. Give us 15 bucks,” like Carfax or other ones, and it’s online, and the way they describe it makes it sound like you’re going to get the name of the prior owner, but you’re not. You’re only going to get maybe the state that it was from, basic information. It’s helpful, maybe worth it, but if you need more detailed information, do this NMVTIS. And again, this is just Wisconsin. Every state has a similar form. Now, if you have additional questions, you want to ask more questions, visit our website car-titles.com. You can even email our help desk at [email protected] is the email, and you can ask more questions. Hopefully, this clears up and goes into detail about what it is to run a VIN or VIN number title history report or title search on a motor vehicle in the U.S.

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Alert: American Car Center Titles Being Claimed By Consumers

Nightmare Waiting to Happen
Big Time article today in Fortune Magazine, one of the largest financial publications, about a subprime auto lender going out of business. Right and we get hundreds of calls every day from people who bought a car from a dealer and they went out of business before they got their title after they paid it off.

Buy Here Pay Here Dealership Issues
Meaning that they did a buy here pay here with this dealer so they paid payments directly to the dealer one year, two years, whatever it is. At the end of that period of time, the dealer had gone out of business, and they never got their title because you don’t get your title until you make your last payment. So if that dealer goes out of business within that period of time, you’re out of luck, and it’s a very serious problem to get a title.

Methods to Get Your Title
You can see the link below of some methods to get your title if you’ve been a victim of a dealer going out of business. But what does it mean for this particular dealer, and how big of a problem is it?

American Car Center Closure
Well, this dealer is called American Car Center, and they closed their doors. They had a $222 million Bond sale that they just pulled. They were trying to get some money. They have 288 people that work for them at their headquarters. They have 40 dealerships across 10 states.

Impact on Car Buyers
So what does that mean? Well, if each dealership, let’s say, sells, I don’t know, what is the dealership going to sell? 30, 40 cars a month maybe, probably more, but let’s say 40 cars a month. That means every month they’re putting like 1,600 cars in the street over all their dealerships. There’s probably more than that, right, but let’s just call it 1,600 cars. Every year, right, that’s like 20,000 cars that they’re putting in the street without giving titles because they hold the title until it’s paid off.

Magnitude of the Problem
So even if their loans are only for a year long, that’s 20,000 people who are at risk of not getting a title. 20,000 people. And if their loans are two years or if they sell 50 cars a month, you could be talking 30, 40, 50,000. There’s a possibility there could be a hundred thousand cars out there with title problems.

Consequences for Customers
So what happens? So you buy a car from this dealer, you pay payments for six or eight months, and then they go out of business. And now, how do you get your title, right? Presumably, there may be a company that comes in and buys up their assets or takes over their operations or whatever it is, or they go bankrupt. But in the meantime, your title is now at risk, right?

Legal Advice and Actions
So what you want to do is if you are a customer of this dealer or any dealer, for that matter, that goes out of business while you’re making payments to them, right away you want to get good legal advice. This may be something you contact an attorney about. At least make a filing with the licensing board.

Filing for a Title
How do you go about getting a title? Well, what you need to do is you need to file for a court order title or a magistrate title, sometimes called a civil lien, right? And it may eliminate you having to make the rest of your payments too. But what you want to do is start that process early because in some cases, the titling division of your state has a victim’s restitution fund that this dealer’s been paying into for years. Once that fund is exhausted, maybe it’s not going to be as easy to get a title. You want to be at the front of the line.

Immediate Steps for Affected Customers
So if you are a customer of this dealership or any dealership that has gone out of business, the first thing you do is you file for a magistrate title or a civil lien title or a court order title. Every state and even counties call it different things.

Title Problems and Lien Releases
But this is huge news. This could mean tens of thousands of vehicles out there with title problems, with lien release problems, because there’s really nobody around anymore that can issue these titles and sign off on lien releases because they’re going out of business.

Immediate Employee Termination
You know, they said right here, they laid off 288 people. All employees will be terminated by the end of the business day. So it’s not like they’re going to be around to finish up on paperwork or to get people their titles. All employees are gone that same day. It was very sudden.

Urgency for Customers
So it’s not like they’re going to have a staff that says, “Hey, let’s wind it up, let’s get these people their titles.” They’re done. Office is closed. That’s going to be a problem. So anybody who has this type of scenario, you want to start right away with getting the process going to make sure that you don’t lose out on your vehicle and all that money you spent on payments is down the drain.

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Car Dealer Sales Tactic Under Review

So there’s a tactic that some car dealers use that has been going on for a long time. We’ve seen this back 30 years ago, 40 years ago, and it’s come up in the news quite a bit recently. It’s a way that dealers can do something kind of underhanded, almost invisible, that might put your purchase at risk and in jeopardy. It’s called a bailment agreement. Some people call it yo-yo or be-back or comeback. Basically, what happens is when you purchase a car and you drive off the lot, there may be an option where the dealer can call you back and leverage you or coerce you or blackmail you into giving them more money after you already bought the car. They can make you come back with more cash, they can make you come back and make your payments higher on the car, or even give you a different car.

How the Bailment Agreement Works
How can they do that if you already drove off? Well, it’s a very common practice and it’s invisible; you almost don’t even know what’s happening when it’s happening. The reason we’re bringing this up now is because Jalopnik had a really good article about this just today. Even Steve Lato, the high-profile YouTuber, and attorney, talks about it again. Dealers’ worst tactic under fire. In fact, in this video, he says his first video on his channel was about this tactic many, many years ago. So it’s coming up again because, for a while, it was kind of out of favor, but now it’s being used more.

The Financing and Spot Delivery Process
How does it work? When you go in to buy a car at a dealership, you have to sign a bunch of documents. You have to sign a buyer’s order, a bill of sale, an odometer statement, a car loan if you have that, and you sign this big stack of papers and you drive off the lot. Well, the way dealers do financing is they do what’s called a spot delivery or on-the-spot delivery. Meaning that when you come in and you want to buy a car, they want to get you out the door in that car right then. They don’t want you to go home and think about it and have them get all the paperwork ready and come back later because you might change your mind. So they want to do a spot delivery to get you over the curb with that car right then.

Dealer’s Financing Strategy
So how do they do the financing? Well, they’re going to take your application and submit it to their lender, or maybe more than one lender, and they’re going to try to find the lender that has the highest advantageous financing for you but even for them because they’ll get a kickback. They’ll get a commission on that financing and they may want to find the dealer that has the best kickback. But not everybody gets approved for financing, so they want to make sure that if they give you that car and let you drive home, if for some reason the financing does not get approved, you have to bring the car back. And that’s legitimate.

Legitimate Use of Bailment Agreements
So mixing that paperwork is what’s called a bailment agreement. And that bailment agreement basically says if my financing does not get approved, I will bring the car back immediately upon request, and they’ll give you your money back and your trade-in back, and they’ll basically undo what they did, right? That’s a legitimate, fair thing. Now we’ll talk later about whether or not you should even do that bailment agreement, but that’s what the dealership does and how to avoid this from happening.

Common Issues with Financing Approval
So what happens is that the dealer sends your application out to some lenders. They pretty much have a good idea of how you’re going to get approved. They see your credit score, they see your income, your pay stubs, whatever the case might be, and they know, okay, this person qualifies for this type of financing. But what if they guess wrong, or what if the lender doesn’t approve it the way they want to? Maybe you got approved but for a higher rate, maybe you got approved but for not as much money. They might have been trying to finance a higher amount of money than the bank’s willing to approve for you or for that car.

Consequences of Incorrect Financing Assumptions
Now they get the call back a couple of days later from the bank and your approval didn’t come in the way they thought it did. And they say, wait a minute, you have to come back in and put more money down. You have to come back in and sign up for a higher payment because your rate is higher. That’s not fair. Well, here’s your bailment agreement; you signed it, or you didn’t get approved at all, and you have to bring the car back or maybe switch to a lower-priced car. So this is something that dealers will put in every deal if you’re getting a spot delivery.

Avoiding Bailment Agreements
So how can you avoid this? Here’s what you do. First of all, do not sign a bailment agreement. If you’re buying a car at a dealership and you’re financing, wait until they have their financing done to pick up the car. If you’re in the dealership and they make an agreement on numbers and you’re financing through the dealership, unless they have the financing already approved and done the way that you have it structured, just tell them, hey, call me when you get it done. It’s not going to take them more than a day, maybe two. If you want to leave them a deposit to hold the car, that’s fine. That’s not much at risk.

Benefits of Avoiding Spot Delivery
Well, here’s what it’ll do, even if you’re not worried about getting declined for financing or rejected. It’s still a good idea. Here’s why: Let’s say, for example, you do your deal, and they put you in as like an a-tier financing or a very low rate or low monthly payments, and it doesn’t come in that way. Now they have to readjust it, and they have the option to do it. They have the leverage to do it. If they do something with a low price and then decide later, wait a minute, we made a mistake, they can bring you back in to fix that mistake.

Real-Life Example of Bailment Agreement Issues
We’ve seen this happen. We had an example where a customer went into a dealership to buy a car. It was late at night, finalizing the deal. They negotiated, and they got a really good deal on this car, and it was a lease deal. And the dealership figured the price of the car with incentives from the factory, like rebates. This was back in 2017 or 18 when there were incentives and rebates on the car. And they also did a lease deal which had incentives on the lease. They had a lower rate for the lease, and they figured the payment up. It was a really good deal. They delivered, they spotted the car, and the customer said, no, I don’t want to do this bailment agreement. Just call me when the deal is ready.

Customer Leverage and Dealer Mistakes
So they didn’t take the car that day, that night. They said, you know, if you have to wait for the financing to be approved, I don’t want to take a car that I’m not approved for yet. It’s not a done deal. So let’s wait till the next day. So the dealership called back, and they said, well, it might be a little different. So the customer said, forget it then. That’s the deal I thought I was getting. If you can’t do the deal, that’s fine, and they were going to go look somewhere else. Finally, the dealership said, okay, fine, we’ll do it. And they came back in, and it wasn’t that the customer wasn’t getting approved because they had very good credit. It was that they had miscalculated the numbers. The lease deal incentive and the rebate incentive, you couldn’t do them both. You could either do the incentive or do the lease deal. The dealership made a mistake, and they used them both when they figured out these numbers.

Importance of Not Taking the Car Immediately
If they had done a spot delivery, they could have called them back and said, hey, you gotta come back and pay a higher payment, especially since it’s been two or three days. You’re driving the car, you’re enjoying it, you’re not going to undo that deal. But since you didn’t take the car yet, you actually have more leverage now because you don’t have to go back to the dealership. You’re more likely to go back and redo that paperwork if you already have the car in your driveway, in your garage, driving it around, whatever you’re doing because you don’t want to give back a car you already have. But if you didn’t do the deal in the first place, now you have leverage.

Final Advice on Bailment Agreements
So what the dealership had to do was they actually had to sell the car for a lower price, probably than they even could have. It was probably a below-cost deal in order to make those numbers still happen because they didn’t want to lose the customer and also have a bad review for that transaction. To make a long story short, if you’re buying a car and the dealership has mixed in that paperwork a bailment agreement or some agreement where you have to bring the car back, call foul on that deal and tell them that you’re not going to do it. When you have the financing done and you know you can do this deal, call me and let me know, right? And I’ll do it then. I’m not going to do speculation with you as a dealership that you think you can do this, but maybe you can’t because I’m committed to it. You don’t have the option of bringing the car back, right? The dealership is doing an unfair advantage to you where they have the option of undoing the deal, but you don’t. So you want to level the playing field. If they can’t commit to the deal and know that it’s going to be completed and etched in stone, then you shouldn’t have to be locked into it either. So unless they’re willing to say, well, you know, you have the option of bringing it back too, then why would you do that? Because it’s not a level playing field.

Conclusion: Be Cautious with Bailment Agreements
So this has come up a couple of times. We saw these two on Jalopnik and Steve Lato. It was also in a Car and Driver article. It seems like dealerships are doing it again. Again, it was very, very popular in the 80s and 90s, but it appears that dealerships are starting to maybe mix this back into their playbook, and you want to avoid it so you don’t run into a problem where you’ve had the car for a few days or a week, and they tell you you have to bring it back, pay more money, or have a higher payment. Don’t worry; there’s plenty of cars to go around, so if for some reason you can’t get that one, somebody else will do that deal for you.

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