people in a meeting discussing different vehicle titles
ComplianceFinanceApril 08, 2022

Title washing into clean titles: Vehicle titles explained

Accuracy during the lending process is important; unfortunately, title washing can get in the way of learning about a car’s past. You want to know as much about the vehicle as possible to calculate its value and ensure you’re not lending the borrower more than the vehicle’s worth. Determining the vehicle’s true value, though, requires you to find the vehicle’s real title and history.

There are several types of vehicle titles throughout the United States; the main distinction is between clean titles and branded titles — such as a salvage or rebuilt title. The type of title is an important indicator of the vehicle's history and condition.

Awareness of the different types of vehicle titles among states puts you in a strong position to understand how title washing happens, discover title washing, and avoid over-valuing salvaged or rebuilt vehicles.

What is title washing?

Title washing is a form of fraud that continues to plague used car buyers and lenders alike. Unscrupulous vehicle owners or thieves often move cars between states with differing title laws; one state might salvage a car while another might provide a clean title. Because there is no federal standard for used-car title branding, dishonest sellers will take a damaged car to a state with lax title laws to get a clean title issued.

Another form of title washing involves forgery — criminals create fake lien release documents or new titles themselves to make it look like the vehicle never sustained severe damage or any other creditor has a secured interest in the vehicle. Ultimately, the goal of both methods is to erase a vehicle’s history.

This “washing” process effectively allows a fraudster to eliminate a negative title brand such as “salvaged” and “rebuilt” from an unperfected title. Then, the unsafe and low-value vehicle is sold to an unsuspecting buyer for a price higher than its actual value. These severely wrecked vehicles present a real danger to both the consumers who unknowingly purchase them and lenders who supply the loans.

You’re at risk of over-valuing vehicles that have had their titles washed and suffering losses if the buyers of those cars default or become delinquent on their auto loans. In some cases, the police confiscate the previously stolen vehicles, or owners discover they bought lemons that are too expensive to repair. Both situations put new vehicle owners in the position of paying a loan for a vehicle they can no longer use or have. You could even face civil lawsuits from buyers who blame you or the dealership for the inaccurate titles.

What is a salvage title?

A salvage title indicates that a crash or other event, like a flood, has significantly damaged the vehicle. Insurance companies determine when to brand a vehicle's title based on the cost of the damage compared to the vehicle's value, but the metrics they use vary by state.

An insurance company in Louisiana would require a salvage title if a vehicle has sustained damage worth 75 percent or more of its retail value. An insurer in another state might not require a salvage title until the damage was worth at least 80 percent of the car’s value. Some states, like Florida, require a salvage title for any vehicle an insurer decides is a total loss, and states’ regulations on what’s declared a total loss varies as well.

The differences among states’ salvage title regulations are how thieves and dishonest owners take advantage of the system. At its most basic, title washing happens when an owner takes a car deserving of a salvage title in one state to a different state where they can receive a clean title.

Understanding that these differences exist and noting the states with laxer laws on salvage titles help you spot potential title issues. The vehicle titles and histories of vehicles coming from certain states might require a closer look to make sure the previous owner or seller didn’t avoid or wash a salvage title.

What is a rebuilt title?

A rebuilt title indicates someone extensively repaired a vehicle that an insurance company gave a salvage title. It should come as no surprise that states handle rebuilt titles differently. Some states specify that mechanics or new owners must meet certain standards and get the vehicle inspected before the state issues a rebuilt title.

The difference between salvage and rebuilt titles

A vehicle with a salvage title is currently damaged, not operable, or unsafe to drive. Some states make it illegal to drive these cars and trucks on public roads, and vehicle owners often have a tough time insuring them. Owners can insure and drive vehicles with rebuilt titles, but these cars are often unreliable, unsafe, and need more work.

Owners and dealers can sell vehicles with either salvage or rebuilt titles to new owners. The trouble isn’t the sale of vehicles with branded titles — it’s the valuation of these vehicles. You don’t want to extend a loan greater than the vehicle's value based on a fraudulently obtained clean title and risk the borrower not paying you back in full down the road.

What states are title washing states?

One reason vehicle title washing is easy is because each state in the U.S. has its own definitions of how a severely damaged car title is branded.

However, the list of title washing states is ever-changing as more are becoming increasingly compliant with the National Motor Vehicle Title Information System (NMVTIS). States provide a vehicle’s Vehicle Identification Number (VIN) to create a database that provides complete and accurate vehicle histories to help combat vehicle fraud. As of April 2022, 49 states and the District of Columbia provides data and inquires into the system before issuing new titles. The state of Hawaii is currently in development to reach compliance with NVMTIS.

What is a clean title?

A vehicle with little-to-no damage has what is referred to as a clean title. A clean title is simply a title that an insurer or state has never changed. It’s not another type of branded title; it simply means that the vehicle has never been deemed a total loss. With a clean title, the car does not have a lien placed on it and has slightly higher resale value.

But a vehicle with a clean title can still have an accident history. The car or truck could've been in one or more collisions or severe weather events that caused minor-to-moderate repairable damage. If a vehicle has been in an accident and fixed without the insurance company finding out, the title would also not be affected.

Clean titles vs. salvage titles

A vehicle with a clean title was never too badly damaged. Conversely, a vehicle with a salvage title means an insurance company deemed that vehicle so badly damaged that it wasn’t worth fixing.

Clean titles vs. rebuilt titles

Vehicles with clean and rebuilt titles are sellable, insurable, and drivable. But a vehicle with a clean title was never seriously damaged and is worth more than a vehicle with a rebuilt title, which has been significantly damaged and comes with some level of risk.

How can you know if a title is clean?

A vehicle’s current and past titles are important information. Owners participating in fraudulent title washing don’t want to admit the vehicle is in bad shape, and dealers don’t always perform thorough inspections that would expose significant damage or repairs. It’s up to you to uncover whether the vehicle has ever had a salvage or rebuilt title.

It’s difficult to spot title washing because of the variances among state title laws, but it’s possible. Lien Solutions helps you efficiently perform due diligence, obtain complete vehicle histories, and spot notable title discrepancies. By partnering with us, you can identify title washing and address it — lowering the risk of over-valuing a vehicle and being unable to collect on your loan if the borrower defaults in the future.

Lien Solution's Marina Hardy
Senior Marketing Manager
Marina Hardy is Senior Marketing Manager for Wolters Kluwer Lien Solutions. Her expertise is in program management, solutions marketing, product management, operations, customer experience, market research, and analytics.
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