"Title washing" is the term used to describe the unscrupulous practice of moving a vehicle with a flooded, rebuilt, or salvaged title to a different state where its title issues are not recognized in order to obtain a clean title for it.
Some sellers may also wash a title in order to conceal the truth about the presence of lienholders on the affected vehicles. Once the vehicle receives a new title, its value shoots up, making it easier to sell.
Here's a more intricate rundown on how title washing works, so you can avoid buying a lemon.
A Primer on Title Washing
When a car is badly damaged in a flood, fire, hailstorm or natural disaster, the car owner's 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 title 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 car to a state where the brand isn't recognized, so 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.
Over 800,000 cars in the U.S. have washed titles, according to the vehicle history report site Carfax. Many of the title-washed cars in the Gulf States received flood damage from Hurricane Katrina and Hurricane Rita, while the title-washed cars in New Jersey and New York received flood damage from Hurricane Sandy.
Such cars are dangerous to drive, as floodwater can damage a vehicle's wiring and corrode its parts. Danger aside, it's unethical not to reveal to a potential buyer that a car has been compromised by water damage and other perils. Simply put, it's just wrong, hence why it's illegal to wash titles.
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 a type of branded title generally given to cars that have been in accidents.
Another way to wash a vehicle title is to alter the document by hand, as car titles don't always have digital counterparts, despite the Justice Department creating the National Motor Vehicle Title Information System, or 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 either allow it or 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 own threshold for declaring a vehicle a total loss. For example, 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. In addition, states often apply different 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 seriously damaged used car without knowing it. To avoid titling scams, it's best to get an Autocheck or Carfax report on any vehicle you plan to buy. 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 includes 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 to indicate 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 cars in the U.S., in part because several states don't send the department this information.
Title washing is an epidemic in the United States, despite the fact that it's unethical and illegal. In fact, as many as one out of every 325 cars on U.S. roadways today may be operating with a fraudulent title that has been washed in order to disguise the vehicle's flaws.
Title washing is a temptation for dealers, especially those with many damaged cars on their hands, as they can get 10 times more value from a car with a clean title. That makes title washing a big hazard for car buyers.
The bottom line is clear. Although title washing is against the law (people have actually gone to jail for washing titles), the practice doesn't seem to be slowing down any time soon, at least until there is some sort of standardized way to handle branded titles among all states.
Because of this, the onus is on the buyer to make sure that they research the vehicles they buy and root out any title branding issues prior to plunking down any hard-earned cash for their purchases. Otherwise, you may find yourself the not-so-proud owner of a flooded or otherwise damaged vehicle, minus the normal discount for its flaws.