Scammers are always looking for ways to get the most money out of individuals and businesses, and unfortunately, dealerships are not immune to their efforts. Title lien fraud is one of the biggest concerns for dealers and consumers to be aware of when buying and selling used cars. Getting wrapped up in a scam can cost everyone — except the scammer — thousands of dollars over a single vehicle.
Understanding lien basics, various fraud methods, and safeguards you can implement in your business is the key difference between being prepared and being vulnerable.
Lien Basics
A title lien is a safeguard placed on the vehicle’s title to ensure any interested lenders will receive what they are due. The most common liens are:
- Financing: Usually regarding an existing car title loan from a bank.
- Mechanic: Unpaid work done by a mechanic. This also applies to towing and salvage services.
- Operations of law: Actions taken by the IRS due to back taxes.
- Family court settlement: Court-placed liens for unpaid child support.
Three Common Methods of Fraud
Title lien fraud happens when a vehicle with an outstanding lien is sold without the lender’s knowledge or consent, leaving the purchaser liable for unpaid debts. Here are some common methods scammers use to deceive buyers:
- Title washing is the act of removing information from a car title by illegal or fraudulent means. Sellers can “wash” a vehicle’s title by taking advantage of out-of-state titling loopholes or forging documents to prevent buyers from noticing any information about the vehicle, such as liens, title brands, or evidence of theft.
- Title jumping happens if a vehicle is sold without the previous owner having titled it in their own name. Title jumping leaves no trace of the previous owner and can leave the buyer at risk for any liens or back taxes from the original owner.
- VIN swapping is when a vehicle’s VIN is replaced with another to disguise stolen cars or hide their history, causing the buyer to be unaware of any potential red flags, such as liens on the vehicle.
Safeguards for Your Business
To protect your business, use real-time motor vehicle records to verify vehicle title statuses. Look for vendors that provide NMVTIS searches as well as state-specific records. Being aware of any potential red flags when buying and selling used vehicles will help avoid later headaches dealing with liens, fees, and legal roadblocks.