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Auto Dealer Floor Plan out of Trust

Understanding Floor Plans in Auto Dealerships
A floor plan is a credit line that a dealership will have for their inventory. If you’re a dealership with substantial inventory, you might not want to tie up all your capital in it. Instead, you obtain a line of credit from a bank, which allows you to pay the manufacturer for each car as it arrives, rather than paying upfront.

The Concept of “Out of Trust”
When a dealership doesn’t promptly pay off the credit line after selling a car, it’s considered “out of trust.” Some lenders hold the titles until the cars are paid off, while others trust the dealership to manage the titles themselves. However, failing to pay off the cars violates the trust the dealership has with the bank.

The Cycle of Debt
Dealerships sometimes delay paying off cars they’ve sold to maintain cash flow, hoping to cover it later. However, this can lead to a cycle of borrowing more, resulting in further “out of trust” situations. Eventually, the lender will realize the dealership’s inventory isn’t being paid off, leading to consequences.

Consequences of Being “Out of Trust”
If a dealership is found to be “out of trust,” serious consequences follow. The lender may intervene, potentially shutting down the dealership or imposing restrictions like curtailment, where the dealership can’t hold titles until they pay off some of the money owed.

Dealing with the Ramifications
If you’ve purchased a vehicle from a dealership that was “out of trust” and never had the title from the lender, it’s crucial to address the situation. This might involve working with the dealership, the DMV, and possibly law enforcement to ensure your claims are handled appropriately. Many states have victim funds financed by dealerships to address such situations and compensate affected individuals.

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