The Expert Podcast

What is a zombie vehicle and why is it becoming such a large problem in the automotive industry? Let's take a look. There are currently tens of thousands, maybe hundreds of thousands, of vehicles that are in a zombie limbo vehicle title status that are piling up all over the country in parking lots, towing lots, dealership backlots, and even individual consumers' driveways. These vehicles are in some stage of lending default, where there’s a loan that was originally issued for these vehicles. The loan was paid for at some point, but either the loan went delinquent, the payments were stopped, sometimes it was repossessed, or in some cases, the loan was even paid off to zero. However, the title for that vehicle is in a status that doesn’t convey the title to anybody.

In many cases, a lender who has a vehicle that’s not being paid for could be a charge-off, a default, or a write-off. You might think that normally a lender would repossess the vehicle— we’ve all seen those TV shows like "Repo Stars" where tow trucks go and repossess vehicles. But it’s highly unknown to the general public that most vehicles that are defaulted or have delinquent payments are never repossessed by the lender. Some vehicles are never even attempted to be recovered from the borrower. So if the driver of the car who’s not making the payments has that vehicle, sometimes the bank doesn’t even want to come get it from that borrower, and we’ll talk about why not in a moment.

Sometimes they will send a recovery company to go get the vehicle from the borrower but then never get it from the towing company. We’ll talk about why not in that scenario too. In both cases, that vehicle now becomes a liability. The towing company has it on their lot and they can’t do anything with it, or the borrower has it in their driveway, taking up space but they can’t title it. They can’t register it because it’s not in their name and there’s a delinquency on the lien. The lien holder is recorded on the title.

In some cases, the vehicle is towed because it was parked improperly, maybe disabled on the side of the road, and the towing company puts it on their lot. Now, they are stuck with the vehicle. In all of those cases, the vehicle cannot proceed forward with ownership because there is a lien recorded on the title by the lien holder.

Well, why doesn’t the lien holder just foreclose and get the title switched over to them? There’s a reason why they may not do that. In the experience of lien holders, getting the title switched over to them may not really have any value. In most cases, the lien holder really doesn’t even want the vehicle back because if they finish the foreclosure process on the vehicle, they have to go through some legal approvals, legal affidavits, and formally put the vehicle in their name. The recovery value of that vehicle, in their experience, for most vehicles, is not worth it. They do algorithm analytics on the vehicles to find out the year, make, model, and mileage. Is it even worth getting the vehicle back? In most cases, it’s not.

We’ve talked about that in other videos, but the big factor is, what are these vehicles doing in the marketplace? Well, now you have these cars piling up in parking lots. Maybe the vehicle owner, the borrower, has the car in their driveway and can’t do anything with it. The registration expires without the title, and you may not be able to re-register and renew the plates. You can’t sell it because the title has a lien on it, and you can’t get a title. You can’t trade it into a dealer for a new car because it has a lien on it. In many cases, because it’s taking up space, the borrower doesn’t have room for another car.

In many cases, we’ve talked to clients over and over who have contacted the lien holder, demanding they come get their car, and the lien holder refuses to come get the car. The loan is in default, it’s been foreclosed, and the lien holder will even tell them, “We don’t want the car back, we don’t care about this car. It’s a charge-off, it’s a write-off, and we’re not coming to get it.” So now, the borrower’s stuck with this vehicle that they can’t sell, they can’t dispose of. In fact, some borrowers have even looked into, “Can I just sell it for parts or sell the parts off it?” and many times, they’ve been advised by attorneys, “You can’t do that; it would be illegal to dispose of collateral of a lender.”

What about towing companies? The banks are using towing companies as leverage to try to get people to pay their car payments. They’re contacting recovery firms or repossession firms and telling them, “Go get this car. It’s a repossession. We’re contracting with you to go rebuild this car.” And the repo company spends time and effort doing research and investigation to find the borrower, do a skip trace on the vehicle, go tow the vehicle, recover it, bring it back to their lot, and they submit an invoice to the lender. And the lender just doesn’t pay it. They’ll tell them, “We’re not going to pay it, we don’t want the car.”

So now, the vehicle is stuck on the towing or the repo lot. The repo company doesn’t have unlimited space on their lot to store cars for free. The lender’s never going to pay any fees on these cars, but the repo company also can’t proceed doing anything because they’re not the lender. They can’t get the title in their name. They may have some kind of a contract to repossess the vehicle, but that does not give them authority with the DMV to get a title. In most cases, they can’t even put a lien on the title for their towing because they’re not an authorized automotive facility; they’re just a recovery company. They counted on the lender to take care of this. So now they’re stuck between a rock and a hard place.

For many towing and repossession companies, these cars are becoming a problem because now half their lot is taken up with vehicles they can’t do anything with.

So, what about the towing companies? Suppose you are a towing agency, and you tow vehicles that, let’s say, are parked illegally— maybe you tow vehicles for the police department that have expired registrations, maybe you tow vehicles from parking lots where they’re not supposed to be allowed to park, or maybe a restaurant or an apartment complex. What happens is, if these vehicles are a zombie vehicle and the police department has you tow one because it’s an expired registration, which a lot of these are, or maybe it’s double parked or maybe it has too many parking tickets. Maybe you have a contract with a restaurant for people who park there to go down the street to some other business and you have them tow illegal vehicles from your parking lot. Well, now, the towing company has these vehicles piling up and, come to find out, they have these zombie liens on them. In many cases, the owner of the vehicle is not able to come get the vehicle from your towing facility because they don’t have the title, and without the title or a valid registration, they’re not able to recover the vehicle from your lot.

So now it has to sit there, and in many cases, you contact the lien holder, and they’ll say, “We don’t want the car, just keep it.” They like it because it gives them leverage to try to get the borrower to pay money. They’ll tell the borrower, “Look, if you get caught up on your payments, we will give you an authorization to go get the vehicle.” So now the towing companies are becoming de facto free storage for the lien holder on these zombie vehicles.

What will happen is, at some point, the towing company will do a towing lien or mechanic’s lien. The process can take 3 to 4 to 5 months. It can cost hundreds of dollars in either fees or title processing or even labor. Sometimes, it’ll take 8 or 9 hours of labor to do all the paperwork, bureaucracy, and jumping through hoops. You have to send out official notices by certified mail, publish ads in newspapers, and hold an auction. Each one of those steps has a waiting period in between— 30, 45, 60 days. So you may be 5 or 6 months holding that car, and even then, sometimes the towing liens don’t work because the lien holder might object to it. They don’t want the car back, but they object to your towing lien. So all it takes is one objection, and now your whole towing lien is rejected by the titling division.

These zombie vehicles are piling up in various places: police impound, towing impound, repo lots, recovery lots, and even, like we said, private borrowers’ driveways where they can’t do anything with the vehicles. That’s affecting the used car market because these vehicles are clogging up the system and, in some cases, keeping people from being able to buy additional vehicles.

There’s really no downside or liability for the lien holder because they don’t need to store the cars, and they don’t see a net value in selling the car because, by the time they pay auction fees and shipping, it’s not going to be really worth it. In most cases, a lot of the vehicles have mechanical repairs that are needed or physical damage on the vehicle. So the value may not be there. Even some of the towing companies we’ve talked to that want to do a towing lien— once they see that the lien process might cost $300, $400, or $500— they just decline to proceed because the car might not even be worth that. Even if the car is worth $1,000, by the time you pay for $500 in the towing process, if you auction off that car, it might be