The Expert Podcast

So what happens when your dealer goes out of business? Well, there are two potential problems with a dealer going out of business: it could be their title, and it could also be your lien release. Let’s first talk about a dealer going out of business. This comes up from some news stories happening with the retailer called Carvana. Now, Carvana is running into some serious financial problems. They reported their fourth quarter of 2022, where they lost one billion dollars in losses just in a quarter of 2022. That doesn't bode well for their future. Now, who knows? They may make it out of this, they may restructure, and they may survive. However, if you're an automotive retailer and you lose a billion dollars and your stock price lost 90 percent, you might have some problems.

What do you have to watch out for if you purchase a vehicle from Carvana or any dealership that might be in distress or have some risk of losing their dealer's license or going out of business? What happens if you haven't received your title yet? Well, what can happen is that you never get your title right. You give them your money or you finance a vehicle and you didn’t get a title. Well, now you're stuck. If that dealer’s out of business, you could have a difficult time getting ownership.

Most states have licensing laws where they have to post bonds, and maybe they can help you get a title, but it's going to be a big mess. So what we recommend doing is, if you're buying a car from any dealer—even if it's a franchise new car dealer or a used car dealer—see if they can show you a copy of the title before you give them the money. If they have the title that they can show you, then you're probably going to be in good shape.

The problem is a lot of these dealers are selling vehicles that are on floor plan, meaning that they have a line of credit from an auction, a bank, or a finance company. When they buy the vehicles, they don’t pay cash; they put it on their credit line, like a big credit card. And when they sell the vehicle, they pay off that loan. A lot of times, the bank or the auction holds the title. So if they don’t pay off the loan right away when they get your money, they don’t get the title, and they can’t put the title in your name. Sometimes, the title can get lost or damaged. A lot of things can happen.

So what we recommend doing is, if you're going to buy a car from a dealer, especially one that has some risk of not being around in the future, see if they can show you the title. They don't have to give it to you, and they can cover up the name of the owner if they want, or whatever they want to do. But if they have the title in their hands, that gives you a lot more peace of mind that you're not going to be stuck without a title.

What do you do if you've already purchased a vehicle and you're having title problems? Don’t waste any time. Right away, start sending notices to the dealer, to the DMV, to the titling authority, and to their licensed authority to make sure you're not going to get lost in the shuffle. The squeaky wheel gets the worm. In fact, if that dealer has 10 titles that they have to pay off the floor plan on because they’re short on cash, if you’re the one that's banging on their door, emailing, calling them, and sending them letters, they'll probably pay yours off first. So you want to be at the front of the line. You don’t want to be the person who’s not saying anything and has their title process last, because your registration might run out, your temp tag might expire, and now you get pulled over, your car gets towed, and you're out of luck.

A lot of these dealers—and again, we're not picking on Carvana, who knows, they may survive and they're not necessarily a bad place—but any dealer that's running into financial problems could have some title risk for buyers. You don’t want to be that person who pays good money or owes money to a bank and you don’t get a title. So watch out for title problems, really with any dealer. It can happen anywhere. If a dealer buys a car and loses that title before they put it in your name, it could be the same thing, and you could be hanging out there for a long time.

We do a lot of titles for auctions and dealers where the dealer bought a car from the auction, had their briefcase in their car, and the briefcase got lost or stolen—all the titles are gone. It’s a difficult task to get that back. The dealer cannot apply for a duplicate title, contrary to popular belief. So make sure that if you're buying a used car, protect yourself from title problems.

Look at our next video, where we're going to talk about lien releases and a major lender, Buy Here Pay Here, going out of business and what that’s going to mean for their borrowers.