Dealer Closed Vehicle Title Problems

So you’re probably thinking if you buy a car from a licensed dealership you’re in good shape, you’re safe as far as the title is concerned. Well, not so fast. Here’s another example of where a dealership closed and went out of business, and this is no small dealership mom and pop store. This is a large chain primarily out of Florida called Off Lease Only. Off Lease Only originally started out as purchasing lease buybacks and selling those to the public, but they branched out into other types of vehicles and they filed for bankruptcy and suddenly just fired all their employees, shut down all their locations.

Consumer Impact of Dealership Bankruptcies
So what does that mean for consumers? Well, there could be a lot of repercussions that recent buyers may not be aware of that have to do with vehicle titles. How does that work if a dealership goes out of business? How do the titles work for the cars that were recently sold? Well, first you have to look at what happens when you buy a car from a dealership. Three things happen. First of all, they take the title that they had for that vehicle and they sign the back of it over to you, and a title, as you know, is a certificate that looks like this and that title is then assigned to the buyer.

Title Processing and the Role of Dealerships
The dealership then takes that title along with the title application that you signed as part of that transaction, and they send it to your local titling authority. So in most states, that agency is called the Department of Motor Vehicles. In some states, it’s called the Bureau of Motor Vehicles. A few states call it the Department of Transportation. In Illinois, it’s called the Secretary of State. That government agency is who issues titles. Remember, you can’t buy a title from a company, you can’t download one from the internet. It is a legal government document issued only by a government agency.

Title Submission and Associated Fees
So once that dealership takes the title from the last owner, signs it over to you, they send it along to the titling authority. So a new title certificate is issued in your name. Along with that title, they also submit the fees that went to getting that title transferred. In some states, you have to pay sales tax on the vehicle, you have to pay the title fee, the registration fee. Those are all collected by that dealership at the time that you purchased a vehicle. As part of your sales contract, they collected all of those fees, so they have to send those along to the titling authority, the Department of Motor Vehicles, with all your paperwork.

Dealership Bankruptcies and Title Processing Delays
So what happens if a dealership goes out of business? Well, first of all, they may not have had the title yet. Many dealerships have purchased vehicles recently from places like auctions, or in the case of Off Lease, some of their cars came from leasing companies. They may not have those titles in their office by the time they sell the vehicle. They want to sell them as fast as they can, so instead of waiting for the title, which may take a month or two, they sell it right away, and when it comes in, then they forward your application to the Department of Motor Vehicles. What happens if they shut down? Remember, the car dealership closed its doors for good, laying off hundreds of workers. Well, what if your title hasn’t been processed yet? What if it hasn’t been sent to the Department of Motor Vehicles yet? They don’t have any employees, they don’t have any locations, everything is shut down, so that may impact you getting your title.

Financial Institutions and Title Issues
Even if you finance the vehicle, you wouldn’t have received the title in the mail from the titling authority directly. That title would have been sent to your bank to finance your vehicle, and that bank may have been one that the dealership set up, it may have been your own credit union, but they would have received the title. Well, what happens after a few months when your bank doesn’t get the title? They’re going to start bothering you and saying, “Hey, where’s the title for this vehicle? We financed it, we need the title.” If you do not get them the title, they can actually convert your loan to a personal loan and increase your interest rate. They can even call your loan to say, “Look, if we don’t get the title, you have to pay us all the money back that you paid for the vehicle.” So the bottom line is that you have to make sure that your title gets from the dealership to that lender.

Ownership and Title Issues Without Financing
If you didn’t finance it, you would have the title in your hand, so you’re the legal owner. Well, if they didn’t actually get that title yet or if they didn’t send it to the Department of Motor Vehicles, that could be a problem. There’s other trouble that could come up. What if when they went bankrupt, they don’t have any more money? What if the money they collected from you for tax and registration and title fees is gone, right? This particular company literally went bankrupt, filed for bankruptcy. When a company files for bankruptcy, that means their funds are frozen until the bankruptcy trustee releases them for whatever reason. And they probably will, if the money’s there, they will release it, but that may take a few months. In the meantime, you’re driving without a title, and your registration may expire, your temp tag.

Worst-Case Scenario: Unpaid Vehicles
Here’s the worst possible scenario: what if they never paid for the vehicle? In many cases, when a dealership purchases a vehicle from an auction, from a bank, from some other source, they put it on what’s called a floor plan line of credit. They have a line of credit just like everybody else does; it’s like a big credit card. When they buy cars, they put the car on that line of credit. That lender holds the title for that vehicle. So when the dealership calls up that lender and says, “Hey, we sold that 2024 or 2023 Honda Civic,” the lender says, “Okay, give us the money for that car, and we’ll give you the title.” And they pay them off one at a time as they sell them. Well, what if they hadn’t paid for the car yet? Now your car is owned by that lender, floor plan lender. So until they get paid, they’re not going to release the title. Your money for that car already went to the dealership, and they went bankrupt, so that lender is never going to get paid. So that creates a problem. In many cases, those things work out through the courts, but it’s something you want to be aware of.

Steps to Take if You Bought from a Bankrupt Dealership
So what do you do if you’ve recently purchased a vehicle from a dealership that’s gone out of business or you financed the vehicle and that dealership went out of business? Well, first thing you want to do is start the process early. Start making filings for getting your vehicle. Most states have a victims’ restitution fund, where if you’re a victim of a scam from a dealership, and dealership going out of business qualifies as a scam, you can file against that fund, file a complaint with their licensing board. Second thing you might want to do is start filing for a court-ordered title to have the court declare you to be the owner of the vehicle by court order so that you can get justice and get your vehicle title in your hands with your name on it.

Additional Resources and Precautionary Measures
You can look at our links below; we have some more videos coming up about the court order title process. You can visit our website, cartitles.com. It’s something you can do yourself for free. We have all the instructions. We even have a couple of videos that will give you the details on how to do all that, but you may want to start that process early because the faster you start it, the faster you’re going to get your title. It’s not going to be quick. It’s not going to be within a few days, and you don’t want to be the last one in line to get a title from that out-of-business dealer. So be cautious.

Final Recommendations
What we recommend doing anytime you buy a car from a dealership, even if it’s a legitimate dealership or a larger dealership, before you give them money, before you sign on the dotted line, make them show you the title, right? They can’t give you the title because you haven’t purchased it yet, but have them at least flash it. Have them show you the title, make sure they have it in their hands, they’re not waiting for it to be paid off from a floor plan line of credit. If they can show you the title, at least now that’s one possible risk that’s been removed from your vehicle purchase decision. Do you have any questions? Reach us on our website, cartitles.com. We even have a help desk email. You can email [email protected]. As an email, we’d be glad to be of assistance.

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