The Expert Podcast

Don’t think just because you buy a car from a licensed automotive dealer that you're out of the woods on title problems. There’s a very common scheme, mostly used by used car dealers—though occasionally a new car dealer will engage in it—that can cause financial harm to consumers. This scheme is called "floor plan fraud." Not many people know this, but dealerships do not own their cars outright; just like you, they have a car loan. If you look at all the cars on a dealer’s lot, for example, a used car lot with 20 cars, and each car averages $15,000, that’s $300,000 worth of cars sitting on the dealer’s lot. Most dealers don’t have an extra $300,000 in cash, and if they do, they likely wouldn’t want it tied up in cars.

To manage this, dealers get a line of credit known as a "floor plan" or "floor line," which finances their vehicles for them. So, when they buy a vehicle from an auction, a trade-in, or any source, the bank writes a check for that vehicle instead of the dealership. The bank then holds the title, just like in your car financing. When the dealership sells the car, they call up the bank and say, “Hey, I sold that 2020 Toyota Camry. Send me the title.” The bank then says, “No problem, send us the money.” So, the dealership takes the money from the customer, sends it to the bank, and the bank releases the title for the new owner.

However, sometimes, if a dealership is running low on cash, they may sell you a car, take your payment, and instead of paying the bank to release the title, they use that money for payroll, rent, or other expenses. This leaves the bank still holding the title, and you unable to get a new title or register the car. This is "floor plan fraud" or “being out of trust with the lender,” and it’s a problem. You may be given temporary tags, but when those expire, you might find yourself unable to get proper registration. Worse, the dealership may go out of business.

This exact scenario recently occurred in Massachusetts, where 25 people reported being defrauded by a dealership using this scheme. Police found that the dealer, Edward Secui, 46, received cars on loan from a local auction but never paid off the auction to obtain the titles. Secui sold the cars, forged or attached fake license plates, and promised titles would be mailed, which, of course, never happened.

In the meantime, if you’re affected by a similar issue, consider a one-on-one consultation with an expert. ActualHuman.com offers private video consultations to discuss this very topic, listen to your story, answer your questions, and advise on your options.

Returning to the case, when Secui stopped responding to victims and didn’t pay the auction, the purchasers could not register their vehicles. Since the auction company still owned the cars, they began repossessing them. If it’s a small used car auction, they may go through with the repossession. Larger floor plan lenders, like Wells Fargo or Chase, might be more lenient with consumers, but legally, they have the right to take back the car.

So, how do you protect yourself? When buying a used car from a dealer, ask to see the title, even if the dealer is handling the registration and paperwork. If the dealer doesn’t have the title, tell them you’ll wait to pay until they can show it to you. This means the dealer must first pay off the floor plan lender to get the title, ensuring your purchase is protected.

If the dealer is unable or unwilling to show the title, consider it a red flag. It could mean they don’t have enough cash in the bank or are running tight, which could impact you if they’re unable to deliver a valid title. Remember, you’re putting your hard-earned cash or financing on the line, so don’t risk it with a dealer who cannot secure the title.

It’s important to note that even if a bank doesn’t give you a title, you’re still responsible for paying the loan because the bank already paid the dealer. Therefore, be cautious and proactive. Floor plan fraud is a risk, and unfortunately, dealerships going “out of trust” with lenders is more common than it seems.

In conclusion, don’t fall for floor plan fraud. This example from Massachusetts is just one instance of a dealership leaving buyers stranded, but it happens frequently. By being informed, you can protect yourself as a consumer. If you found this information helpful, check out other videos on our channel for related topics that may help you resolve any issues.