When is buying a used car from an established new car dealer actually the receipt of stolen property? When the dealer didn’t pay off the previous owner’s loan. The New York Times has tales of the woe car buyers are facing thanks to now-shuttered houses of ill-repute. Vacaville Ford, for example, sold Diana Foley a used 2006 Lincoln Town Car taken in on trade. Ms. Foley was probably feeling smart for saving herself the massive initial depreciation on a Town Car. Lttle did she know that Vacaville Ford never paid off the prior owner’s loan balance and didn’t own the car it sold her. Now Diana has a car in her driveway she can’t register and doesn’t really own; the prior owner of the Town Car still owes money on a car they don’t have anymore and Vacaville Ford is boarded-up. “David Paulson, the Solano County district attorney, is prosecuting Vacaville Ford-Mercury for similar fraud involving an as-yet-undetermined number of consumers.” Thousands of miles away, the attorney general’s office in Arkansas has sued McKay Hyundai of Pine Bluff on “charges that the dealership violated consumer protection laws by not paying off loans or by selling nonexistent extended warranties to at least 40 people.”
With over 900 new car dealers having gone bust last year alone you can be sure there are countless more cases of fraud and double dealing going on. Bankers involved in these deals also share liability for funding the dealerships and the car loans without making sure everything was on the up-and-up. These banks must know they are in hot water, as Arkansas Assistant Attorney General has said “some banks have been willing to let Arkansas consumers off the hook by handing over the title and accepting the loss.” I’ve never seen a banker roll over just because it was the nice thing to do, so we can assume they wrote off the unpaid balance to avoid an even more difficult situation. No matter who you are doing business with, Ronald Reagan’s maxim remains the best advice: “Trust, but Verify”. Make sure you have a clean title in hand before handing over any money.
Man, this is really bad business. These individuals need to be criminally prosecuted. Everyone hates a thief. More so if they hide behind a legitimate business.
This shows how nice the German system works.
Under German law, if you buy an item from someone who holds it in his hands, you will generally acquire ownership through good faith. The exeption being that this is not true when the object had been stolen or where you were aware that the seller is not the owner.
With regard to cars, proof of ownership is basically given through a ownership certificate indicating also all car details (“Fahrzeugbrief”). I as seller of a car would never give anyone the certifiacte before I get fully paid. Therefore, if you buy a used care from someone who holds it in his hands, and he can transfer to you the certificate: you will become the owner, even if the seller still owes money to someone else, and even if the ownership had not been transferred to the Seller. Nice, huh?
This is a very big deal here in Arizona. I personally have a friend who bought a used Colbolt that wasn’t the Car Dealers to sell. The dealer tricked her into coming back to the Dealership to “sign a few more papers” and then took the car. She was very upset and in my trying to help her make since of it, uncovered that the car was still in collections from some strange off brand bank finance place (American River Finance or something).
She is hardly the only one out here as well. The news has been flooded with these stories for their “On your side” investigators. The blame comes in three fold. One, blame the seller of the car to the dealer for trying to pull a fast one over. Two, blame the dealer for selling a car that they dont hold the title on. And three, blame the buyer from the dealer for not CarFaxing the car or asking to see the CarFax from the dealer. I guess you could always blame the economy as well, why not.
How would German law help? It seems to me if that were true in the US we would instead have countless more scams of people selling what was not theirs and disappearing with the money. The buyer would still be out the money or the actual owner would be cheated, If the rascals disappear or go out of business it seems someone is going to get screwed and it should be the dealer but they’re not around
Tireguy
The law in the United States is actually very similar to the German law you describe.
Uniform Commercial Code Section 2-403 is the law in all or almost all of the United States. It covers the doctrine of entrustment.
Basically, the law is this: if you entrust, that is, deliver possession of goods (a car, for example) to a person who deals in goods of the kind, the dealer has the power to deliver good title to a buyer in the ordinary course of business. This is true even if the dealer promised to pay the lien but didn’t. It’s even true if you deliver your car for a dealer to repair, and he turns around and sells it to somebody to feed his drug habit. (I’ve seen this happen.)
As a lawyer, I see this come up most often when a dealer has a floorplan lender who doesn’t get paid, and the lender refuses to release title. More often than not, the consumer calls their state Attorney General office, and an undertrained staffer calls the lender who still refuses to release the title, then they tell the consumer she’s out of luck. This is completely wrong. It’s an unfair and deceptive practice for the lender to refuse to deliver the title based on 2-403.
If you have this happen to you, there’s another legal provision you might find useful, and that’s the FTC Holder Rule, 16 CFR 1333. This rule states that when the seller is involved in obtaining the financing, when the buyer has a legal claim against the seller, the buyer can raise that claim (offensively or defensively) against the lender. In plain language, if a car dealer helps you finance the car, and doesn’t give you clear title, you have a claim against the lender. You have a defense against making payments on the loan, and an offensive claim against the lender for the amount you already paid.
It can be hard to find an attorney who understands this stuff. Your best bet is to get a referral to a local attorney through the National Association of Consumer Advocates at http://www.naca.net.
@Sherman Lin:
it would help a lot, since you can rely on ownership and acquire it under good faith only if the certificate is shown. In the above case, either the dealer would have to first sell off the old owner and then receive the certificate – or he could close only a deal by which he would show that he is selling on behalf of the old owner, and the old owner would claim money before turning over the certificate.
Tire guy It seems to me that the dealer never had the paperwork in order under existing law and they wouldn’t under German law.
An unsuspecting consumer the woman is fooled by a quick talking salesperson and doesn’t even know what paperwork she is suppose to see. It happens all the time here in florida that older people are fooled into believing that the leased car was actually purchased when it was in fact leased.
You present a shiny car in front of the woman have her sign some papers and she believes she owns the car. She purchased the car in good faith. The actual owner may have traded in the car in good faith. But some innocent party either the original owner or the bank or the buyer is going to get stuck holding the proverbial bag because the guilty part has vanished.
Under German law it won’t be the buyer that is screwed but how would you feel if someone sold your car to someone else and vanished with the money. Do you still want the woman to keep your car?
And if you can prove that the car is actually yours and you keep the car then she is SOL. The problem is that the guilty SOB is missing not the law. In this case German law would seem to protect the woman but screw over some other innocent party instead.
If news of this type of problem appears regularly in the MSM, it will further suppress car sales. It is an extension of the lack of trust that is afflicting the US economy – no one really knows what they are buying or investing in anymore.
@Conslaw: thanks for the update on US Law. I was surprised that there should not be any such type of good faith acquisition.
@Sherman Lin:
If there is specific paperwork required, that might pose a problem. But, as far as I understand Conslaw, it would basically be sufficient if the Buyer just signs a purchase contract. Under such contract the Buyer should receive ownership once he has paid in full. There does not seem to be specific paperwork required. For sure, a Buyer needs to read the stuff – but shouldn*t any buyer do this?
Coming back to the German situation: here the nice thing is that every buyer knows that he should receive the certificate (Fahrzeugbrief). If he gets it and pays for the car – then he becomes the owner (unless the car was stolen, but then normally no certificate is available). It makes life for people quite easy.
More examples of scum-bag, thieven, swarmy car dealers……….gee, what a surprise.
I worked for 4 dealers and in the day as an insurance adjuster had dealings with probably 200 more. How many of those would screw you if they had a chance?…… My experience, probably 90%.
“Coming back to the German situation: here the nice thing is that every buyer knows that he should receive the certificate (Fahrzeugbrief). If he gets it and pays for the car – then he becomes the owner (unless the car was stolen, but then normally no certificate is available). It makes life for people quite easy.”
We have the same thing in the US, but call it a “Certificate of Title”. Never buy a car without having a clean title handed over to you. I walked away from buying a used vehicle once because the owner claimed the title was lost and that I could easily get a replacement from the Department of Motor Vehicles. The cashiers check went back in my pocket and I never did buy that car. Luckily, my bank was able to simply redeposit the check back into my account.
Wow, how will a dealer react when I tell him he won’t get paid until my banker has all the proper documents on the car? Buying a car just got a whole lot more complex.
If an item is stolen (through fraud or theft), and the the thief sells it to somebody else, the original owner still legally owns the item. That’s basically what is happening here; the person who bought the car is SOL if the dealer stole it from somebody else. Obviously, the buyer can then sue the dealer, but if they are that crooked to do this in the first place, there’s little chance of getting their money back.
Had this happen once, in Newark, NJ. Client bought a car from a “curbstoner”. (guy who sells used cars for a living or at least extra $ but without a dealership or indicia of being “in business”.
The Tercel came up stolen-after the buyer registered the car, NJSP showed up to check the VIN numbers and it was hot.
We sued the seller. He, like all car dealers I have ever intersected with professionally, denied everything and fought to not only the Courthouse steps, but every dilatory tactic and up to Trial.
The Judge was no nonsense and gave my client Judgment for the car. Which the dealer then paid.
I find it interesting that if you do go all the way and get Judgment, the dealers then pay up. They will stonewall you all the way if they can get away with it, and are NOT afraid of attorneys or lawsuits.
They do the “call back” game with new cars, too. A family member bought a car (Toy MR2). The payment book showed up a bit higher than the agreement. Dealer says “come in, we will discuss it” and “make one payment and we’ll work it out”. I called, and said I’d happily come in, but to drop off the car for good, as it is clear that the deal is rotten, and with the untouched and unpaid payment book. My next call was to be to Toyota Finance where the F & I guy calls me, apoligizes for the salesmen, and fedexes me a corrected payment book. What was clear were the two salesmen who tried to talk the family member into this were anything but “mistaken” or “in error” about what they tried to pull off.
Don’t ever buy a car where you don’t get title. Period.
If she paid cash a title should have been produced. If it was financed the finance company would have insisted on a title before forking over a check. If she financed it through the dealer in house, good luck with that. They could take her down payment and not even give her a kiss on the neck.