Should You File A Lien or An Abandoned Vehicle?

How to File for a Mechanic’s Lien on an Abandoned Vehicle
Well, first of all, it’s very important to distinguish between a mechanic’s lien and an abandoned vehicle, because abandoned vehicles have a lot of limitations on what you can do. In most cases, the vehicle that you’re trying to get a title for really is not abandoned. Because if you call it abandoned, you’re probably going to lose out on what you’re trying to do with your title.

Example from Maryland
We’ll talk about that as an example. We’re going to take a look at a specific state—happens to be Maryland—and how they address mechanic’s liens and how you get titles and what you can and can’t do. Remember, we do have a service where if you want assistance with this mechanic’s lien vehicle title process, you can access that on our website. And we can give you more information either as instructions, or we could do it for you, or we can even do consultation.

Maryland Department of Transportation Motor Vehicle Administration
First, we’re going to look at Maryland Department of Transportation Motor Vehicle Administration’s process for entitling a vehicle with a mechanic’s lien.

Federal Guidelines for Mechanic’s Liens
Remember, this is just one state, but most states have about the same rules. And the reason we selected this one to give you as an example, even if you’re not in Maryland—the chances of you being in Maryland are very slim because it’s the smallest state in the country and there are 50 states, so you’re probably not in Maryland—but the rules here are probably very similar or the same as your state. Why is that? Most states use the federal guidelines for mechanic’s liens and abandoned vehicles.

What is a Mechanic’s Lien?
So what is a mechanic’s lien? You can put it against a vehicle by a repair or storage facility if the owner fails to pay the repair bill and leaves the vehicle in the custody of the facility. Now, think about that. This is not abandoned. They intentionally gave it to you in your custody for an extended period of time.

Selling the Vehicle
After taking the action required to establish a lien, the facility can then sell the vehicle to recoup the money owed to you. That sounds like what you want to do. Don’t be scared by what it says here about selling the vehicle at a public auction. It’s not like you have to bring it to some auction and let them auction it off. You hold the vehicle on your premises. You just give the public notice that they can come offer you a bid. You don’t have to take their bids. You could put your own bid in and beat everybody. It’s not like you have to pay anybody money. The money’s going right to you. You just have to at least let the public offer you something for it.

Rules for Obtaining a Mechanic’s Lien
What are the rules for obtaining a mechanic’s lien? Remember, this is a brief overview, but it does give you some insight into how it works. All of the following must be true before you can establish a mechanic’s lien. Notice the first word “all.” You have to have all of these true.

Charges and Repair Authorization
Charges for the vehicle or vehicle repairs must go unpaid for at least 30 days. Meaning that you can’t just jump the gun and file it 2 days after the guy dropped off the car. You have to wait a month. Charges must be supported by a repair authorization. What does that mean? You have to have a completed repair order authorized by the vehicle owner, including a detailed description of the work performed. So you can’t just make stuff up. You have to have it in writing and the owner has to sign it before you do the work.

Other Options
If you don’t have that or don’t meet any of these other criteria, there are other ways you can get a title. Our website will give you what’s called a civil lien or a court order title or a bonded title. There are other things you can do. So if you don’t meet these criteria, don’t worry. You can do other things. And sometimes the other things are actually easier.

Storage Fees
If you want to charge storage fees, you have to have a storage contract. You can’t just make up storage fees out of the blue and say “I’m charging you $20 a day.” Can’t do it. You have to have it in writing and signed.

Abandoned Vehicles
A vehicle that has been abandoned does not qualify for a mechanic’s lien. So don’t start calling these vehicles abandoned.

Contacting the Police
What happens if the vehicle’s abandoned? The local police department should be contacted.

Steps to Establish a Mechanic’s Lien
How do I establish a mechanic’s lien? At least 10 days prior to the planned auction date, you have to send a notification letter by registered mail to all the persons listed below.

Notification Details
The owner of the vehicle. The person who left the vehicle if it’s different than the owner. So if the vehicle’s owned by Joe Smith and Sally Smith dropped it off, you have to send a letter to each of those people.

Security Interest Holders
You have to send a letter to all holders of a security interest. What does that mean? That means lienholders. So if the vehicle has a lienholder, you have to send them a notice. And you have to send a notice to basically the DMV, the government authority.

Content of the Notification Letter
What has to be in that letter? The VIN number, year and make. A list of all the charges owed to you. So you have to have a breakdown of what the fees are that you’re claiming. Letting people know it’s going to be auctioned and the date and time of that auction.

Newspaper Advertisement
What you also have to do is you must also place a notice in the newspaper. And it’s very specific how you have to do it.

Correcting Errors in Advertisement
If the newspaper advertisement is incorrect, meaning you don’t wait the number of days, you do it too soon, too late, you must re-advertise and again send the certified letters out again.

Auction and Title
Then you hold your auction and you get your title.

Downsides and Limitations
What are the downsides? The downsides are, first of all, if you’re not a licensed repair facility, you can’t do this. You can’t just fix cars in your backyard and do a mechanic’s lien because you’re an illegal mechanic to begin with. You can’t make up storage fees out of the blue. You also can’t wait too long. Most states have a rule that says you have to do this within six or eight or ten months. If you’ve been sitting on a car for 10 years, you can’t do a mechanic’s lien.

Alternative Titles
Most of the time if you’ve been sitting on a car more than two or three years, you’re out of luck for a mechanic’s lien. But there are other things you could do that still get you a title. And a lot of times those other things are better than a mechanic’s lien. Like a civil lien or court order title or bonded title or VT transfer.

Importance of Legitimacy
A mechanic’s lien is a powerful tool to get a title for a vehicle that has other problems. However, don’t do a fake mechanic’s lien if a person really did not bring their car in for repairs. You don’t have a signed repair order. Don’t start making stuff up because what’ll happen is that the owner of the vehicle after you get your title is going to get a letter saying “Hey, we noticed that your vehicle was transferred away from you using a mechanic’s lien.”

Consequences of Fraud
Did you sign a repair order? Did you bring your car in for work? They’re going to audit the mechanic’s lien. If they find out that you filed a fake mechanic’s lien, they’re going to revoke your title and they’re going to do enforcement action against you. You may not think it’s a big deal but the state licensing authority—they do know that people use this improperly to get titles when they’re not supposed to.

Consultation and Assistance
So make sure you’re doing it the right way. Make sure you’re all legit, i’s dotted, t’s crossed. If there’s any question that the mechanic’s lien might not be the way to go, then do a civil lien. Do a court order title. Do a bonded title. It’s way better in terms of how it works out for you. If you do have more questions about how to run one of these, how to do the paperwork, or you just want us to do it for you, click the link below.

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How NOT To File A Mechanics Lien On A Vehicle

Mechanics Lien and Title Problems
I know what you’re thinking: you have this vehicle, you have a title problem, and you’re thinking, “Wait, an easy solution is just to file for a mechanic’s lien and I’ll get a title.” Even if you are a licensed automotive facility, you may find that filing a mechanic’s lien not only will not work to get you a title, but it could backfire and create some problems for you. Here’s the thing: what many people aren’t aware of is that filing a mechanic’s lien for a vehicle title is a very specific process.

Consequences of Filing a Mechanic’s Lien
It should only be used in certain circumstances, and if your situation does not meet those circumstances, not only will you not get a title, but number two, you could be fined and have enforcement action taken against you, and number three, you could lose the vehicle. So let’s take a look at how that works. What may not be readily visible to you is that any time you file a mechanic’s lien, you now have three or four very powerful forces aligned against you to keep you from getting that title. You have the DMV—they don’t want you to get a title on a mechanic’s lien. They have task forces that are trying to prevent mechanic’s lien title applications from going through. You have lien holders that are out there trying to block mechanic’s liens. You also have an enforcement arm of your local district attorney looking at mechanic’s liens. It opens up an enforcement and audit process.

Florida’s Mechanic’s Lien Example
So let’s take a look at what a mechanic’s lien is. Here’s one example from Florida for lien enforcement of a lien sale of a motor vehicle. A person claiming a lien under statute 713 for performing labor or services may enforce a lien by sale of the vehicle in accordance with the procedures, and if you notice, this goes on and on. Here are the procedures—this goes on for pages. A copy of their certificate, a copy of this, failure to make good faith efforts precludes the imposition of charges. If you make any mistakes at any time, the owner can request to inspect the vehicle. You can’t charge—a lienholder or sales agent may not charge fees in excess of $250. Must use third-party services with a million-dollar bond. There are all kinds of requirements here that would probably make your application invalid or ineligible. Also, at the end of this process, you can’t keep the vehicle—you have to auction it off. A vehicle subject to a lien must be sold at public sale, very clearly. Immediately upon the sale, the lienholder, meaning the seller, must deposit with the Clerk of Court the proceeds of the sale. So there’s a lot of stuff you have to do here. The clerk receives 5% of the proceeds, and that’s after you go through all this. After final demand, a hearing should be held. Now look, in this there’s an option you have: at any time before the sale, the owner may post a bond or file a demand for hearing, so that’s going to be a clue of what things you can do. So here’s what the official statutes are.

Forces Against Mechanic’s Lien Filing
Now when I said before that there are forces lined up against you to prevent you from getting your mechanic’s lien, we’re going to look at those, but don’t despair. There is a method you could use that’s better than a mechanic’s lien that doesn’t have any of these adversaries. These people are not trying to block you, and it’s faster, cheaper, and easier than a mechanic’s lien, and most people don’t know about it. We’ll talk about that at the end.

Fraud Prevention in Mechanic’s Lien Process
So how do we know that there are forces working against you? Well, here is a trade publication: “Filing Fraudulent Mechanic’s Liens—Don’t Do It” and “Auto Lien Sale Fraud in Florida: What Every Lender Needs to Know.” This is Auto Dealer Today. This is a dealer publication. This was published five years ago. The automotive industry, lenders, and DMVs know that a lot of mechanic’s liens are fraudulent, or even if they’re not, they’re trying to block them. Facts indicating lien sale fraud: not able to contact the customer, no accident information from the insurance company, tow/repair shop recently incorporated or not licensed, telephone number for the towing company is not answered. So there’s going to be a lot of red flags. Steps to take to prevent lien sale fraud: calendar the lien sale date, contact the customer including “Did the towing company tow your vehicle? Did you authorize repairs?” The bank is going to contact the owner of the vehicle and ask them if it’s legitimate. If it’s not, it’s going to be reported to law enforcement.

Best Practices for Fraud Prevention
You’re also going to contact the person starting the lien to get documentation for the towing and storage, and if you provide them fake documentation, that’s another crime. Don’t be a victim of what they call lien sale piracy. If you’re using a lien sale to take a vehicle away from somebody you’re not supposed to take it from, you’re going to get in trouble. “Best Practices for Prevention of Abandoned Vehicle Mechanic’s Lien Fraud”—this is from the American Association of Motor Vehicle Administrators. Those are DMV Commissioners. Motor vehicle administrators are the people who run the DMV. They have put together best practices for prevention of mechanic’s lien fraud. What does that tell you? That tells you that the DMVs are aware of this. They have put together best practices. What are some of the best practices? Here is their 39-page handout. It’s a 39-page manual on the best practices for preventing that. Let’s take a look at some of that. First, they tell you the reason that they’re doing it is because of inadequate, outdated title laws—financial institutions may suffer significant losses from people taking advantage of mechanic’s liens.

DMV Fraud Detection Practices
There’s a working group task force to develop detection of fraud in the title application process. They are actively looking for fraud with these cases. We’ve talked in prior videos about how they do it. They audit them. They have sophisticated software that will flag applications based on your automotive license. Should you be doing this many mechanic’s liens? And here’s the fraud they’re identifying in the mechanic’s lien process: title brand washing, trying to remove a title brand, lien washing, fraudulently removing a lien holder without a valid lien release. So if you want to remove a lien, get a valid lien release. There are better ways to do it that are legal than trying to do a mechanic’s lien, and we’ve talked about it before, and our website will explain that to you. If you try to use a mechanic’s lien for getting rid of a bank lien, you’re just putting a big target on your back and a big flashing light on that VIN number for them to look at it and to possibly catch you doing something illegal.

Fraudulent Practices and Their Consequences
Fraud may occur when a lien claim intentionally circumvents the notification requirements: not providing the owner information, not doing the notification, intentionally sending empty or junk-filled envelopes to the legal owner, sending it to incorrect addresses. Also, this is a big one—selling the vehicle to their employees, not holding a public sale. So if you’re trying to get the title for yourself, that’s what you do—you won’t hold a public sale where your vehicle gets the highest price.

Avoiding Fraud and Mechanic’s Lien Pitfalls
Trying to avoid getting the highest sale price in a public sale—you just want to slide it to your friend or to yourself—that’s going to be fraud and they’re going to catch you. In chapter four, they tell you the process to locate and notify the vehicle owners. They tell you how to do that using the NMVTIS. They’re also going to tell you how to use lien title services and third-party agents and find out which ones are committing mechanic’s lien fraud. And the biggest way they do that is through fraud in advertising. So you might use a false VIN number, a fictitious ad for a sale that never takes place. This occurs when the lien claimant creates a newspaper ad but never publishes it as required, or they don’t actually hold the sale. What does the DMV do? They’re validating and verifying the ad and also validating and verifying the sale, making sure it matches the vehicle and that it was actually held. Collusion between the lien claimant and the buyer—that means that if the person you’re trying to steer the title to is a friend of yours and you’re colluding to make sure they get the vehicle—that’s also a crime. In some cases, it’s a felony.

Legal Consequences and Internal Audits
Another big one is intentionally holding a vehicle to increase storage costs, and that is a way to try to jack up your fees. Again, they know about all this. This is published information at the DMV, so they’re looking for it. So don’t think just because it’s possible to do something that there aren’t people watching what actions you’re taking. And so at the DMV, they tell you the best practices for registries is to review the application. And when I say review, they go over it with a fine-tooth comb. They look at the application, the fees, the jurisdiction, the lien notice forms, bill of sale, affidavit of ownership. They’re going to do a background check on all the parties to make sure there are no relationships. They’re going to verify the lien, and what they’re going to do in many cases is even if everything looks okay, they’re going to reject it and send it back to you with the hopes that you’re going to be scared that they caught you and you’re not going to refile it. They’re also going to do a stop title process, placing an administrative stop on the application during the review. This makes sure that the vehicle isn’t fraudulently conveyed to another party. This is the big one—internal audit.

They’re going to internally audit all the records for that repair shop to see: did they have a repair record for that vehicle before they did a lien sale? If you can’t show that you had a record of repair on that vehicle before you’re doing a lien sale, that right there is a red flag that’s going to catch you in the act of trying to do a fake mechanic’s lien. And what they’re going to do is if they suspect fraud, they’re going to take that title application and they’re going to retain it for criminal prosecution. They’re not playing around. They are doing this very specifically in all 50 states. We are in contact with all 50 states’ DMVs on a regular basis discussing how these issues are coming up in different states and how they’re being caught.

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Get An Abandoned Vehicle Title

Abandoned Vehicles
We’re going to talk about the most commonly requested subject that comes up from callers to our private vehicle title helpline. This is the most frequently asked for information, and it’s what most people who contact us ask about: abandoned vehicles. Mostly it’s because the person who’s calling needs to get a vehicle title a legal title document for a vehicle and the idea they came up with is to say, “I’m going to declare it as an abandoned vehicle and claim it.”

The Consequences of Declaring a Vehicle Abandoned
We’re going to talk about that and look at the laws and how that works because one of the things you have to remember is that an abandoned vehicle may not be the actual definition of the vehicle you’re trying to get a title for. And as soon as you declare it as an abandoned vehicle, it is now permanently locked into that definition, and you may not be able to get a title it may permanently ban you from getting a title.

Better Methods Than Declaring a Vehicle Abandoned
There are often better methods of getting a title than trying to claim it to be abandoned because if you think about it, where did you hear about abandoned vehicles? Probably just something you came up with or maybe you read it on some discussion group. It’s not normally the best way to get a title. In fact, most of the time, if you declare and say a vehicle’s abandoned, you will lose the vehicle forever to the government.

Government-Issued Titles
Remember, a title is a legal government document issued only by a government agency. You can’t buy one from a company, you can’t download one from the internet. The government decides who to give titles to based on their rules. The government agency in most states is called the Department of Motor Vehicles. Some states call it the Department of Transportation.

Abandoned Vehicle Laws Across States
You’ll notice that when we look at a few states, the rules are going to be almost exactly the same from all these different states. Why is that? Well, the rules for abandoned vehicles come from federal guidelines federal government guidelines. So all the states’ rules are about the same. You’ll see as we look at three or four states here how it works, even if your state is not one of the ones we use as an example.

Pennsylvania’s Vehicle Disposal Rules
First, we’re going to look at a fact sheet on the disposal of abandoned vehicles from private property, and that’s probably what you’re thinking about because you can’t really claim abandoned vehicles on the side of the road, right? If it’s on the highway or if it’s on a street, you can’t really claim that. But if it’s on your property, you might say, “Hey, if it’s on my property, I’ll charge storage fees and I’ll claim the vehicle.”

Definitions of Abandoned Vehicles in Pennsylvania
The purpose of this fact sheet is information on disposing of vehicles which have been left on private property. Notice the word “disposing.” It doesn’t say “ownership.” This is from the Pennsylvania Department of Transportation. The definition of terminology: abandoned vehicles involve an intention to abandon together with an act of surrendering the vehicle.

Legal Definition of Abandoned Vehicle in Pennsylvania
Abandoned property is that which an owner has relinquished all rights, title, and claim, and possession with no intention of claiming it or resuming ownership. So if you declare it to be abandoned, you’re saying that the owner and you see, it says “an owner,” not “the owner”, “has relinquished all rights, title, claim, and possession.” If you’re saying you’re the owner, then you’re relinquishing rights just from day one. You might be game over on doing it.

When a Vehicle is Presumed Abandoned in Pennsylvania
A vehicle shall be presumed to be abandoned under any of the following circumstances, but the presumption is rebuttable, meaning that it’s not 100%:

• The vehicle is physically inoperable and left unattended on a highway or public property for 48 hours
• The vehicle has remained illegally on a highway for a period of 48 hours
• The vehicle has remained on private property without the consent of the owner for more than 24 hours

Private Property and Abandoned Vehicles
You might say, “Yeah, it’s been here for more than 24 hours,” but did you ever give consent to the person to put it there? Did you ever say, “Hey, you can leave your car here for a couple of days”? Did you buy the car and give somebody money and they gave you a bill of sale? Well, that was consent because you put it there. So this doesn’t apply for most scenarios without the consent of the owner. Now, if somebody just voluntarily drives a car onto your driveway, leaves it, and takes off and you don’t know who it is and you never told them to do it, that might apply.

Methods of Disposing of Abandoned Vehicles
So what do you do? Here are the methods of disposing of vehicles:

• You may request a police department to declare a vehicle abandoned and require a salvage yard to take possession
• The property owner may personally remove the vehicle to a place of storage pursuant to section 3352—basically, you bring it to a towing company or salvage yard for them to get rid of it

What Happens After Vehicle Removal
The vehicle may be sold at a sheriff’s sale. The property owner may file suit in common pleas court requesting that an order be entered awarding ownership. That sounds like a court order title we’ll talk about that later.

Court Order for Vehicle Ownership
You can’t declare it as abandoned and say, “I want to keep it.” You have to petition and request that an order be entered to award you the ownership, and that request will extinguish the title and interest of any other person. The property owner may not repossess an automobile for the cost of storing the vehicle unless you are a bona fide warehouseman provided by the Universal Commercial Code.

Challenges with Vehicle Ownership Claims
What if you say, “Well, I did work on it and I want to use that to claim the ownership”? Well, a bill incurred for repairs to a vehicle can be collected only by filing a complaint and obtaining a judgment against the owner. What does that sound like? Sounds like a court order title, right?

Texas Rules on Abandoned Vehicles
Texas law says that there are certain requirements you have to meet if you are going to charge, store, or remove a vehicle. What if you’re a storage facility, like a self-storage yard? Well, the first thing you need to do is: the garage keeper shall report the abandonment of the motor vehicle to a law enforcement agency in the jurisdiction where the vehicle is located and pay a $10 fee for notification. The garage keeper shall retain custody of the abandoned motor vehicle until the agency takes the vehicle into custody. So what does that say? The cops are going to take the car if you say it’s abandoned.

California’s Lien Sale Procedures
If you declare it to be abandoned, you have to report it to the police and they come take it. What if you don’t report it as abandoned? A garage keeper who fails to report an abandoned vehicle to a law enforcement agency within 7 days after the date it’s abandoned may not claim reimbursement for storage of the vehicle.

Legal Process for Vehicle Ownership in California
Last but not least, we’re going to look at California. So here’s a place—for California, if you’re thinking about California, you can call us and talk to us about these situations, but we just want to let you know that an abandoned vehicle in California is also the same, meaning the law says that you can’t just declare it as abandoned.

Conclusion
The only way to keep abandoned cars forever is through proper paperwork, court orders, salvage, and legal procedures. Simply declaring a vehicle “abandoned” doesn’t automatically grant you ownership and often results in losing the vehicle to government authorities. Before pursuing any abandoned vehicle claim, consult with legal professionals and explore alternative title acquisition methods that may be more appropriate for your specific situation.

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Is Carvana Really In A Turnaround?

Carvana’s Initial Issues
You may remember back a few years ago when we had done some reporting on this channel. You can see in this video clip that we were concerned that Carvana, the major auto retailer, was having problems. There were some criminal accusations, and there were major title problems. We were hearing from clients every single day about how they were having title issues and not getting titles for vehicles. There were some questions about their accounting back then and whether or not they were even going to stay in business. Did they have enough money? And we reported on this. We had probably eight or nine videos over the course of six or eight months that talked about whether or not Carvana was even a legitimate company, allegedly.

The Turnaround and Initial Resolution
Well, all of a sudden these problems seemed to go away. They bought an auction company called ADESA. They moved some money around. They changed their financial statements, and all of a sudden it looked like they were in great shape. Their stock went up. Their company seemed like it was rebounding, and so it kind of faded away.

New Allegations Surface
But it seems like we were a little ahead of our time. This article came out today in Automotive News where Hindenburg Research, which is a company that looks for publicly traded organizations or corporations hiding problems on their books, questioned Carvana’s accounting practices and called the turnaround a mirage. So that turnaround that happened two and a half, three years ago made it seem like the company all of a sudden was in great shape. It was kind of curious. We even questioned in one of our videos, like, how did this happen all of a sudden? They were at one point on the ropes, back against the wall, and then a couple of months later they were doing great. It’s not like they were selling many more cars; their business wasn’t that much different. It’s just that their finances all of a sudden got better. We questioned how that happened. And since, you know, it wasn’t that big of a deal to us, we kind of let sleeping dogs lie.

Forensic Audit Results
Well, this article comes out to say they made accusations that they did a forensic financial audit and found $800 million in loan sales to a suspected undisclosed related party, and that there was accounting manipulation and lack of underwriting resulting in temporary reported income growth. So what they’re saying, basically, is the income growth, the business development, the rise in sales was all smoke and mirrors. That’s what they’re saying, allegedly. Their research, including extensive document review and 49 interviews with employees and related parties, shows that Carvana’s turnaround is a mirage. It remains to be seen whether or not this is accurate, but it is a troubling report coming out from a major analyst.

Closing Thoughts
Now granted, they’re short sellers, so they bet on companies going down, but who knows whether or not this video we did a couple of years ago, “We Told You So, Carvana in Trouble,” was a precursor to this major problem with Carvana. Stay tuned and let us know if you’re having problems with any Carvana titles or any dealership titles for that matter.

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What To Expect For Car Titles In 2025

Vehicle Titling in 2025
So what can you expect in the industry of vehicle titling for the year 2025? Obviously, with the new year, there are a lot of new rules and not a lot of new laws, and also some industry transformations that we’ll be seeing in the coming year and years following. There are four major changes that will happen to the vehicle title process in the coming year. We’ll talk about all four of them, and it’s going to affect you as a vehicle owner, as maybe an automotive professional, as a lender, or as an auction. A lot of our clients are auctions.

Electronic Titles
The first one is going to be electronic titles. Through our coalition called eART with many other title providers and some other third-party vendors like DocuSign, CarMax, and Manheim Auto Auctions, we are now pursuing a transformation with the different DMVs in different states to have them convert to electronic titling in all 50 states. Now, it’s a slow process, and it’s going to take a while to get there, but many states are already starting to implement technology.

Digital Signatures and Paperless Process
They’re starting to implement rules that allow for things like electronic digital signatures. Look, everything else you do in life buy a house, sign a mortgage you can do electronically, right? Use DocuSign e-signatures. DMVs don’t normally allow this right now; only one state really allows it, so we’re working on doing that. We’re also working on eliminating paper title documents. We’re looking at electronic documents. We’re working hard to get that done. So in 2025, we expect that many states are going to start adopting more and more of these rules and allowing people to have electronic titles and electronic records, which will make the process easier. You won’t get as much of a runaround, and you won’t have to wait as long for titles to come in the mail. You can get them almost instantaneously.

Montana LLC Loophole
The second big change for vehicle titles is going to be Montana LLCs. Remember, back years ago, there used to be the Vermont loophole. People did this Vermont loophole over and over to get titles from different states using the Vermont loophole, and that loophole, for many years and we talked about it back starting five, six years ago was really numbered in days, right? Because it’s not really the preferred way of getting a title, and the other states really didn’t like it because you weren’t going through the right process. Eventually, they put enough pressure on the federal government and Vermont to stop doing it, and the state of Vermont didn’t want to stop because they were getting a lot of money on sales tax.

The Montana LLC Loophole Explained
Well, now the loophole that some people are using is the Montana LLC loophole. What is that? Well, Montana does not charge sales tax when you buy a vehicle, so some people are using this process to buy a vehicle without having to pay sales tax by putting the car in a corporation name in Montana. Now, why a corporation name? Well, most states don’t allow you almost all states don’t allow you to get a title from that state unless you are a resident of the state. So you can’t just shop around and say, “Well, this state is easier or better for me to get a title. Let me just get a title from there.” It doesn’t work that way. You have to be a resident. But the way to work around it is you form a corporation in Montana, an LLC, you put the title in the name of the corporation, and you don’t pay tax. Well, technically, that’s not good because even though you registered it and titled it in Montana, you’re driving it in your state. So the tax isn’t just where you get the title; it’s where you use it, where you’re an owner.

Legal Issues with Montana LLCs
Whether or not that evades your taxes or not, that’s between you and your taxing authority and your revenue department. That’s more of a legal question than a title question. But you’ve got to watch out because many states are recognizing that this Montana LLC is a way people are using to evade taxes or to avoid things like inspections or paperwork, right? And the states, through our conversations with different states, they know that this is happening. They’re not stupid; they realize this is going on. There are all kinds of fly-by-night companies advertising, “Yeah, we’ll do this Montana thing for you,” and you’re paying $500 to $600 in fees to get a license plate from Montana.

Crackdown on Montana LLCs
A lot of people are doing it on higher-end vehicles like luxury vehicles or motorhomes when those could cost $100,000 to $200,000, and you could save $10,000 to $15,000 in sales tax. Now, there may be legitimate reasons to do it rather than just avoiding the sales tax, or you might say, “Well, I’m going to do that because I’d rather have a title there and still pay the tax in my state.” That’s fine, but that’s something that’s going to end pretty soon. You’re not going to see that being able to be done too much longer, and some states are starting to crack down. They’re sending out bulletins to law enforcement in the state: “Look, if you see a Montana license plate in our state, run the plate. If it’s an LLC, pull that car over to see if the driver is on the LLC,” because now that begs the question: Are they using the car in their state? Plus, check the insurance.

Insurance and Registration Issues with Montana LLCs
Because if you have a Montana LLC, the question is: Where is your car insurance policy from? If you have a Montana policy, but you’re driving it, let’s say, half the year or all the time in Virginia, then you’re kind of misrepresenting to your insurance company where you’re using the car. On the other hand, if you get an insurance policy from Virginia and you have a Montana LLC, then it doesn’t match the registration. So that could be a problem. So if you’re going to look at that, we recommend getting legal advice from an attorney to make sure what you’re doing is not going to get you in trouble. Look, it may not you may talk to an attorney and they say, “That’s fine” but just make sure that you verify for yourself that what you’re going to be doing matches your personal needs and matches the laws in your state and matches what you’re trying to accomplish. It doesn’t get you into trouble accidentally.

Salvage Vehicles and Copart/IAA Auctions
Number three is salvage vehicles: Copart vehicles, IAA auction vehicles. We’ve started this conversation many years ago, three or four years ago. Most of the vehicles now that are coming out of Copart and IAA are going to start to be more commonly designated as “parts only” vehicles, not salvage. Some states call it “certificate of destruction,” some states call it “non-repairable,” Texas calls it that. Some states call it “junk.” The scary thing is some states don’t call it anything. They just don’t give you a title, and you may not know you’re getting one of these.

Insurance and the Parts-Only Designation
What does that mean? Well, if the vehicle has been designated “junk” or “parts only,” its VIN number is void. You can’t get a title, can’t get a registration; it’s a permanent cancellation of that vehicle as being eligible for any kind of on-road use. Can only use it for parts. A lot of people are buying these cars out of Copart, IAA, not knowing what they’re getting into, and they’re finding out later, “I can’t get a title.” And we’ve talked about this before, so this isn’t news. The news is more insurance companies are starting to use this instead of salvage titles. Why are they doing that?

Why Insurance Companies Favor Parts-Only Titles
Well, what they’re finding is they’re not getting that much less money for the car at the auction. They’re getting the same amount. Why is that? Well, most of the people who are buying cars at Copart or IAA are not buying them for the purpose of putting them back on the road, fixing them up, and selling them. Most of the people buying cars there are buying them to take them apart anyway. Even a salvage title. In fact, the only people really making big money on cars at Copart or IAA auction are the ones who are dismantlers.

The Economics of Buying Salvage Cars
You buy a salvage title car, it’s crashed in the front, and they take it apart. You can have a $5,000 engine, a $3,000 transmission, $2,000 airbags maybe five or six of those you have wheels, you have doors, you have computers. Gosh, there are four or five computers in a car, each one could be worth $1,000. By the time you add all that up, it could be more than what the car would be worth if you bought one from a dealership. So you have the expense of dismantling it. More importantly, you have to have the expertise of knowing where to put all these parts, ship them to warehouses, put them in the right place, and advertise them.

Insurance Companies and Salvage Cars
But these parts companies already have that. They’re already doing that. So if you took the same car, let’s say a 2022 Toyota Camry, it’s crashed in the front, you buy it for half its book value or even a third of its book value. You might think, “Well, I’m stealing the car.” Well, by the time you buy all the parts, put the car back together, and go to sell it, you’re going to find a couple of things. First of all, you’re not going to get that much for the car, because people who are in the market for used cars want a car that’s in good condition. You don’t get that much out of it. But by dismantling it, you’re now part of the supply chain that gets to sell these parts. And that’s why insurance companies have figured that out. They’re selling parts, they’re liquidating these vehicles, they are selling them off, and they’re moving them through auctions without much of an issue.

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