Title washing issue grows and lenders must protect themselves
Hurricanes, flooding, earthquakes and other natural disasters destroy billions of dollars’ worth of property in the U.S. annually. Motor vehicles are among the properties most often damaged beyond repair and considered unsalvageable in such situations. For those cars damaged by flooding that are repaired, new titles are issued reflecting that fact, so those seeking a bargain do so knowing the risk they take. If the car’s title is “washed” (title brand is removed or the real lienholder is concealed), the buyer—and possibly the lender—are none the wiser and could end up with a damaged or discounted vehicle on their hands. Underwriting an asset with the incorrect value may result in a total loss for a lender in case of delinquency or default.
How Title Washing Works
A state’s Department of Motor Vehicles may deem a vehicle damaged in an accident, a flood or other natural disaster as “damaged” or “salvage.” An unethical title owner takes the car to another state and obtains a clean title. That is possible because the new state either doesn’t have a salvage title policy or only issues such titles for vehicles valued above a specific amount. Some states will designate a water-damaged vehicle with a “flood” title, but some states do not. In the latter case, it is simple for the owner to sell the car out of state to an unsuspecting buyer obtaining a loan from an unsuspecting lender. And now there’s a new title washing wrinkle: increasingly, thieves are stealing vehicles and forging clean titles. All of the above are examples of title washing.
National Motor Vehicle Title Information System
There are resources available to help. If a state uses the National Motor Vehicle Title Information System (NMVTIS), vehicle title history is tracked via VIN numbers. NMVTIS is an online database of vehicle information that lenders can use to ascertain the true history of vehicles for which they are lending. The use of NMVTIS by lenders can prevent the issuance of a loan to a buyer with a fraudulent title. Many of our customers consider obtaining these reports as part of their standard due diligence process; they want to ensure that the asset they are underwriting has the stated value.
Arrests for title washing in Southern California
In May 2019, California authorities arrested 10 people in connection with a title washing scheme. The alleged title washers used fraudulent information on the credit applications and bought cars from several Southern California dealerships. They then created fake documents and filed them with the California Department of Motor Vehicles. The phony documents removed lien holders and allowed the crooks to obtain clean titles. The cars were then sold to used car dealers or on Craigslist, and lenders experienced financial losses as a result.
The title washing suspects were charged with 35 felony counts of grand theft, grand theft of a motor vehicle, identity theft, commercial burglary and receiving stolen property.
Another scheme that our lender customers are seeing involves VIN cloning, and it affects car buyers across the nation. People have found their vehicles confiscated by law enforcement because they unknowingly purchased cars with cloned VIN numbers. When a thief clones a VIN, most often the car with the crooked VIN is sent out of state for sale. It’s a sophisticated fraud that can fool car dealers. Currently, 42 states use NMVTIS prior to vehicle registration to ensure there is no duplicate VIN.
NMVTIS and Reporting
In those states using NMVTIS, certain entities must report specific information. These entities include state motor vehicle titling agencies, insurance carriers, auto recyclers, junk and salvage yards, salvage auctions and similar businesses. These entities must report several types of vehicle information, but exceptions are made for very small salvage operators or recyclers unable to report VIN numbers. And many lenders have requested NMVTIS reports to be created specifically for luxury assets for which they are lending money.
Performing Due Diligence
The rising tide of title washing makes it imperative for a lender to perform proper due diligence on all motor vehicle assets. Otherwise, should the borrower default, the lender may discover it cannot collect on the assets.
If there are questions about the history of an asset, a third-party vendor with modernized solutions should be utilized for the titling verification process. The best of these vendors will utilize the power of NMVTIS to review a vehicle’s history and allow lenders to safely proceed through the titling process
In short, the right partner simplifies the entire titling process while protecting the lender throughout.
Lien Solutions has ways to maximize your vehicle security. Read more about iLien Motor Vehicle or call us for more information at (800) 833-5778, x3.