Title washing is a common but illegal way to boost the value of a damaged car. It involves moving the vehicle to another state that doesn't recognize its branded title – be it a flood title, salvage title, rebuilt title, or another adverse issue. Once the vehicle receives a clean title, its value shoots up, making it easier to sell. Here's a rundown on how title washing works, so you can avoid ending up with a lemon.
What Is Title Washing?
When a car is badly damaged in a flood, fire, hailstorm, or natural disaster, the insurance company may declare the vehicle a total loss. A total loss means repairing the car costs almost as much as it's worth. State laws typically require the insurer to brand such a vehicle's title and registration with a designation indicating its flaws. Title washing sidesteps those laws to scrub the brand off the car, raising the vehicle's value in the process and removing any lienholders who may be attached to it. Title washing typically involves moving the vehicle to a state where the brand isn't recognized so that it can be registered with a clean title.
Many car dealers and private sellers engage in title washing, even though the practice is illegal in most places. In Texas, for example, two people were given three-year prison sentences for title washing about 800 vehicles and had to pay $600,000 in restitution. More than 800,000 cars in the U.S. have washed titles, according to the vehicle history report site Carfax. Many title-washed vehicles in the Gulf States received flood damage from significant hurricanes like Hurricane Katrina and Hurricane Rita. The title-washed cars in New Jersey and New York received flood damage from Hurricane Sandy. These vehicles are dangerous to drive, as floodwater can damage a vehicle's wiring and corrode its parts.
How Title Washing Works
Many title-washed cars are former salvage titles, meaning their repair damage equals 50 to 100 percent of their market value. Unlike flood titles, salvage titles are generally given to cars that have been in accidents. Another way to wash the title is to alter the title document manually. Car titles don't always have digital counterparts, despite the U.S. Department of Justice creating the National Motor Vehicle Title Information System (NMVTIS) to keep track of them. Alternatively, some states assign a salvage title to a vehicle's Vehicle Identification Number, or VIN, in their DMV files but not their titles. As a result, owners can repair and repaint the vehicle and sell it to unsuspecting buyers, sometimes without needing to switch states. Some people have even begun to sell stolen vehicles by tweaking their VINs to match those of salvage cars.
Although title washing is a federal crime, several states don't enforce laws against it, such as Texas, California, Washington, Tennessee, Mississippi, Illinois, New Jersey, North Carolina, Massachusetts, Virginia and Georgia. Mississippi has the worst title washing problem in the country, with one out of 44.6 cars having a washed title — over seven times higher than the national average. One reason car title washing is easy is because each state has its threshold for declaring a vehicle a total loss. Some states compare the repair costs of a damaged vehicle to its value in working condition, while other states compare the vehicle's repair costs to its scrap value. Also, states often apply different names of titles for the same damage, such as junk, rebuilt and irreparable titles.
Why You Should Care About Title Washing Scams
Title washing is dangerous because you can end up buying a severely damaged used car without knowing it. It's best to get a vehicle history report on any vehicle you plan to purchase to avoid titling scams. Carfax provides history reports on millions of vehicles by pooling records from dealerships, manufacturers, auto and salvage auctions, U.S. and Canadian motor vehicle departments, and many other sources. Each car's history report includes all the accidents in which it was involved. Each report also consists of the vehicle's mileage history, so you can verify that the odometer is accurate. The National Insurance Crime Bureau also provides a VIN-checking service.
For additional safety, make sure you buy cars from reputable sellers and consider asking the seller for a written guarantee of the car's value. Licensed dealers are more trustworthy, as they risk losing their license if caught title washing. Always check that the seller's name matches the name on the title document. If it doesn't, ask the seller why. It's also a good idea to have an independent mechanic look over any used car you want to buy. Mechanics can detect hidden damage, such as car sections that have been bolted together instead of welded. If you suspect your vehicle has been title-washed, let your local law enforcement agency know.
There are many other red flags that a vehicle has been title-washed. For example, online marketplaces such as eBay may show that a vehicle was sold as damaged despite the vehicle's history report saying otherwise. Similarly, the car may have a rebuilt title even if its repairs deserved a salvage title. Keep in mind that nearly half the states in the U.S. let insurers decide on a car's value before declaring it a total loss. In some states, such as Colorado and Texas, the repair costs must be equal to or greater than the car's market value to qualify as a total loss. The Justice Department lacks detailed information on 13 percent of the vehicles in the U.S., in part because several states don't send the department this information.
Title washing has become an epidemic in the U.S. At a 2013 Florida State Senate hearing, a vehicle auction company claimed that about 1 in 7 cars it sold two years earlier couldn't be repaired and were only worth scrap. Altering titles is a temptation for dealers with many damaged cars on their hands, as they can get ten times more value from a vehicle with a clean title. That makes title washing a significant hazard for car buyers. Research any vehicle carefully before buying it.