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Flood damaged cars legal issues insurance marketplace

If you're buying a used vehicle, heed the warning, "Buyer beware!" You may be buying a vehicle that was on its way to the salvage yard or a stolen car that you won't be able to register. To help prevent these problems, the US Department of Justice offers an electronic database called the National Motor Vehicle Title Information System (NMVTIS).

NMVTIS is designed to:

  • Protect states and consumers from fraud
  • Protect consumers from unsafe vehicles
  • Keep stolen vehicles out of interstate commerce
  • Reduce the use of stolen cars for illicit purposes
  • Help law enforcement agencies reduce vehicle-related crimes

NMVTIS gathers its information from several sources, including state motor vehicle departments, insurance companies and salvage yards. By law, NMVTIS information is available for a small fee to potential buyers. This includes businesses that purchase used automobiles and commercial buyers, such as car dealers and lenders who finance car purchases. NMVTIS has information on many vehicle types, including automobiles, buses, trucks, motorcycles, recreational vehicles, motor homes and tractors.

Vehicle Brand History

An important piece of information provided by NMVTIS is the vehicle's brand history. The brand is the descriptive label each state places on a vehicle to identify its current or previous condition. For example, a vehicle that has incurred significant damage is often branded as a "junk" or "salvage" vehicle.

Once a state motor vehicle department brands a vehicle, that brand becomes a permanent part of the vehicle's NMVTIS record. Knowing a vehicle's brand helps buyers avoid scams where vehicles marked for the salvage yard are cleaned up and resold.

A scam artist can easily "wash" - i.e., remove - a brand from a vehicle's title. The vehicle is retitled in a state that doesn't check with other states to determine whether it has existing brands not shown on the vehicle's paper title. Then, the vehicle is sold without disclosing its brand history and condition.

After Hurricane Katrina, many cars flooded by salt water were taken from Louisiana to states that don't "brand" flood vehicles. The cars were cleaned up and sold to unsuspecting consumers.

NMVTIS is designed to prevent a vehicle's history from being concealed. The system allows a state to check a vehicle's brand history from all other states before it issues a new vehicle title.

Cloned Vehicles

NMVTIS can detect a "cloned" vehicle. A cloned vehicle is a stolen vehicle that has had its vehicle identification number (VIN) removed and replaced with the VIN of a legally owned vehicle of the same make, model and year.

With a valid VIN number, a stolen vehicle often goes undetected by state motor vehicle departments, law enforcement and unsuspecting consumers. The cloned vehicle might be sold to a consumer or used to carry out a crime.

Vehicle cloning is a growing problem. According to the National Insurance Crime Bureau, estimated profits from vehicle cloning in the United States exceed $12 million a year, and each cloned vehicle nets an average of $30,000.

By checking NMVTIS, state motor vehicle departments can identify suspected stolen vehicles before issuing a new title. The system reveals whether the same VIN is issued to another vehicle. Law enforcement can be notified immediately.

State Implementation

States using NMVTIS have time and cost savings in their motor vehicle departments, decreased motor vehicle thefts and improved stolen vehicle recovery. Arizona, for example, has experienced a 99% recovery rate on vehicles identified as stolen and a decrease in consumer lawsuits involving vehicles with concealed brands.

States use different standards and terms in branding vehicles. For example, the "salvage" brand definition may be based on dollar value. A car could be branded as salvage in one state, but not another due to such differences.

Categories of brand designations aren't uniform among the states. Louisiana, for example, had a brand designation of "flood" vehicle, and many flood-damaged vehicles were taken to and retitled in states without that brand. NMVTIS shows a vehicle's reported brand designations from all states; relocation won't "wash" its brand history.

The goal of NMVTIS is that all states use it to prevent consumer fraud and vehicle-related crimes. Presently, more than half of the states report data to NMVTIS. The remaining states must begin reporting by January 1, 2010. Insurance carriers and junk and salvage yards must begin reporting by March 31, 2009.

Check NMVTIS before Purchasing a Used Vehicle

Use NMVTIS data as you plan your vehicle purchase. An NMVTIS vehicle history report includes:

  • Information from the vehicle's current title, including its brand history
  • The latest reported odometer reading
  • An insurance company's designation that the vehicle is a "salvage" vehicle or was determined to be a total loss
  • Any reports that the vehicle has been transferred or sold to a junkyard, salvage yard or auto recycler

You can check out the VIN of the vehicle you are considering purchasing on the NMVTIS Web site. Currently, the cost of an NMVTIS vehicle history report ranges from approximately $2 to $4 per report. The report also includes a link to access the full vehicle title record from the state in which the vehicle is currently titled.

Questions for Your Attorney

  • Do I have a legal claim against a used car dealer if it had negative branding information from an NMVTIS report on the car I bought but didn't disclose it to me?
  • Do NMVTIS reports include information about lemon law claims?
  • Will an NMVTIS report include information about a car if it was a dealer's demo and it suffered damage before a consumer bought it?

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Floods are a potential threat to any area prone to sudden or prolonged heavy rains. Vehicles caught in floods can undergo extensive damage, but not always. Find out what to do if your vehicle is flooded, how to assess and stop further damage, and how to spot flood damage when you shop for a car.

What to Check if Your Car is Flooded

Follow these important steps to inspect your car and assess flood damage:

Check your oil indicator.

A reading of an oil level that's too high may tell you there's water in the engine. Do not start or run your car - it could cause severe damage.

Measure the depth of the water that submerged your car.

It is possible water did not enter any parts that are susceptible to damage.

Determine how long your car was submerged.

The shorter the time, the more salvageable any damaged parts may be.

Be sure to note the type of water that flooded your vehicle.

Fresh water causes less damage to your car than salt water.

Check local weather reports for the temperature during and after flooding.

Warmer temperatures may speed up corrosion, especially if your car was flooded with salt water.

What to Look For When Car Shopping

Cars damaged by floods often show up on used car lots. Learn how to spot flood-damaged vehicles before purchasing a used car.

Buy only from a reputable dealer.

You're more likely to get the truth about a vehicle's past life from a reputable dealer.

Ask the dealer if the vehicle has been flood damaged.

Whatever the answer, get it in writing with the bill of sale if you buy the car.

Ask to see the title.

If you think the vehicle was damaged in a flood and the title is not stamped "Salvage" or "Flood," ask for the car's history to see if it came from a state that recently experienced flooding.

Find out how extensive the flood damage was.

In some cases, the damage cars sustain in a flood is serious, but if a car has sustained only minor flood damage, it can still be a good used car.

Look for obvious signs of damage.

Check for dried mud or rust in the glove compartment, trunk, under the dashboard, seats and carpet. Look for discolored, faded or stained upholstery or carpeting. If the carpeting fits loosely or the color does not match the interior, it may have been replaced because the vehicle was flood damaged.

Check the instrument panel to see that all gauges are working properly. Check on the outside of the engine, inside garnish moldings and "kick plates” and inside the rear compartment or trunk for a distinguishing water line to see how deep the car was submerged.

Find out what kind of water damaged the vehicle.

Ask if the car was flood damaged by salt or fresh water. Salt water is more corrosive and can cause more serious damage.

Have a professional inspect the vehicle.

Take the vehicle to a trusted mechanic to be checked for any signs of flood damage.

Spending a little extra time to thoroughly check out a used car before you buy it can save you a great deal of money in the long run.

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If you recently bought a used or new vehicle that you suspect has flood damage, all is not lost. State and federal lemon laws are in place to protect consumers. But you’ll want to be diligent about getting to the bottom of this.

That’s because water damage to a vehicle is serious business. In fact, you could be saddled with the following problems:

  • Major monetary loss. Flood damage diminishes a car’s market value by as much as 75% if, of course, it still retains any value.
  • Water damage slowly corrodes engine and electrical components, resulting in heavy repair costs.
  • The corroding nature of water damage could, without warning, cause the brakes to fail, making the vehicle a liability rather than an asset.

If you unknowingly purchase a flood damaged vehicle, contact your state’s Attorney General as soon as possible. The volume of car complaints has prompted  the following states to pass a Used Car Lemon Law:

  • Connecticut
  • Massachusetts
  • Minnesota
  • New Jersey
  • New Mexico
  • New York

This law provides a mandatory warranty based on the used car’s age or mileage. If mechanical problems occur during the warranty, the dealer must repair the vehicle. If the problem persists the dealer must then replace the vehicle or refund the buyer.

If you don’t reside in one these six states you may be protected by one or some of the following federal laws:

  • Federal Trade Commission (FTC) Used Car Rule – The FTC requires dealers who sell six or more vehicles to post a Buyers Guide form in every used car  that’s for sale. The guide must state whether the vehicle is being sold “as is” or with a used car warranty, and list all the possible defects that could occur on the vehicle.
  • Federal Lemon Law – This prohibits the posting of implied warranties when the vehicle is sold with an express written warranty.
  • Uniform Commercial Code (UCC) – Under this law, a used vehicle automatically includes an implied warranty that the vehicle is safe to operate on the road. However, used car dealers may deny the implied warranty if they sell the auto “as is.”

If you think any of the above laws were violated, you may have a case against the dealer who sold you the flood-damaged car.

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