Title washing and the use of NMVTIS for lenders
Title washing continues to be a problem for lenders across the US. A title washing scandal made the news as recently as August 2019 when Illinois authorities uncovered a scam in which participants used fake “Release of Lien” documents to get clean titles, according to ABC 7. This form of fraud spikes after natural disasters like hurricanes and floods damage many vehicles — but it can happen anywhere, at any time.
There are several ways fraudsters finagle clean titles for damaged or stolen cars and trucks. State regulations for branded titles, including salvage and rebuilt titles, vary. Regulations in one state might require a salvage title for a damaged vehicle while rules in another don’t. People take vehicles to states with laxer rules regarding branded titles and request a new, clean title in an attempt to erase the car’s history.
Another form of title washing involves forgery — criminals create fake lien release documents or new titles themselves to make it look like the vehicle never sustained serious damage or any other creditor has a secured interest in the vehicle.
No matter how vehicle fraud happens, when it does, you face financial and legal risks. Title washing increases the likelihood of delinquency and default if the police confiscate the stolen car or truck, or the new owner can’t afford to repair the badly damaged vehicle — and some auto sellers and lenders have faced civil lawsuits when the new owners discover the fraud.
National Motor Vehicle Title Information System (NMVTIS)
The American Association of Motor Vehicles administers NMVTIS — a database that provides complete and accurate vehicle histories to help combat vehicle fraud. The best way for you to perform due diligence is to use the NMVTIS database, which is accessible through third-party providers.
The federal Anti-Car Theft Act requires states to provide NMVTIS with a vehicle’s VIN and description as well as the name of the person or business the state issued the title to. States must also submit relevant information obtained from insurance companies, junkyards and salvage operators. Insurers must report salvage and junk title vehicles, and auto recyclers, salvage yards and junkyards are required to report all vehicles they receive to the database.
The result of these reporting requirements is that NMVTIS collects the most extensive vehicle history attached to each Vehicle Identification Number (VIN).
NMVTIS vs. Carfax: Why NMVTIS is better
Carfax is popular, but it’s not the optimal source of title information. People and businesses voluntarily report to Carfax, and the company sometimes purchases information. There’s no way to guarantee that a Carfax report is correct or thorough, and the company even discloses that a “Carfax Report may not include every event in a vehicle’s history.” It might not identify salvage, junk, flood or rebuilt titles that are relevant to you.
Federal law requires states and various businesses to report vehicle information to NMVTIS, which creates an in-depth paper trail about a car’s history. The federal government enforces this policy by fining businesses that fail to report required information to NMVTIS. If a vehicle was badly damaged, given a salvage title and sold to a junkyard or recycler, NMVTIS should know about it.
As of 2017, 43 states and 96 percent of departments of motor vehicles in the US were part of the system, and 5 states were developing the capability to participate, according to NMVTIS.
Vehicle title search by Vehicle Identification Number (VIN)
When consumers ask you to underwrite a used vehicle, the best practice is to investigate the vehicle’s history, verify the vehicle’s clear title and become aware of any past damage to avoid fraud. The most efficient way to confirm the vehicle’s current title and discover any discrepancies in the vehicle’s history is to use a service to check the vehicle’s title status by its VIN. An NMVTIS report offers the most rigorous report, which Wolter Kluwer provides through its Motor Vehicle Solutions.
An NMVTIS report based on a VIN includes five types of information:
- The current state of the vehicle’s title and the last title date
- A history of title brands, including salvage, junk, flood or rebuilt titles given in any state
- Whether an insurer has ever deemed the vehicle a total loss
- A vehicle’s salvage history
- An odometer reading, which can point to vehicle history discrepancies
This information uncovers salvage and rebuilt titles issued in other states or instances of insurers declaring a vehicle a total loss, which prevents you from accidentally approving a loan on a vehicle with a fraudulently obtained title or over-valuing a damaged vehicle.
A newer form of vehicle fraud is VIN swapping or VIN cloning. People take VINs from other, similar vehicles and put them on stolen or salvaged ones. The fraudulent VINs might be associated with a clean title, or a salvaged car’s VIN might be used to disguise a stolen vehicle. The end result is that someone can turn a profit by selling a vehicle with a fraudulently obtained title.
Authorities often find VIN swapping by discovering title information for two vehicles in different locations through a VIN title search.
Salvage title or rebuilt title
Cars and trucks with salvage titles have suffered significant damage, and owners of these can’t usually insure them or lawfully drive them on public roads. Vehicles with rebuilt titles were previously badly damaged, branded with salvage titles and then repaired. Owners can insure rebuilt vehicles, but they often are unreliable. To properly value a vehicle, you need to know of current or past salvage or rebuilt titles.
Spotting VIN swapping or title washing is challenging, but it’s possible with an NMVTIS report that provides a correct and thorough vehicle history. An NMVTIS report also can uncover title information for two vehicles with the same VIN in two different locations as well as previously branded titles.
You benefit from finding the right partner to perform vehicle title due diligence. Lien Solutions, a product suite of Wolters Kluwer, has extensive knowledge regarding the vehicle title market, including the evolution of title fraud and how to spot it. Work with us to receive an NMVTIS report on each potential asset.