It happens more often than you might imagine. Someone buys a classic car based on the sellers representation that the car has a “clear title.” And in fact, the title appears “clear.” Days, weeks, years, or even decades later, they find out otherwise.
One of my customers recently purchased a 1960 Corvette from a seller in Michigan. He paid for the car via wire transfer, and two days later the title arrived. A few days later the car was uneventfully picked up by the transporter, and it began its trip to New York. The trip would take about a week, and during this time my customer planned on obtaining a registration and license plates so that he would be ready for the cars arrival.
This particular customer is in the enviable position of owning homes in New York, Florida, and Vermont. His plan was to keep the car at his home in New York, so that is where he chose to title it. Or should I say register it, because New York does not issue titles for cars built prior to 1973. More about that later.
You can imagine his shock when New York declined to register the car because it had been reported stolen in 1966! How, he wondered, could he possibly be holding a “clean” title from Michigan in his hands if the car had been stolen? Before calling the seller and making angry accusations, he called the Motor Vehicle Departments in Vermont and Florida to see if they would have any problems registering the car, and both said he would not have any problem registering the car in those states.
Although many plausible theories exist as to why this car is reported as stolen in the records of the New York DMV, but not some others, we may never know. The important point is that just because there is no lien recorded on the title, there are many reasons that a “clear title” may, in fact, not be clear.
The example above is not very common, but it is not that unusual either. It could have originated as a result of human error, or it is possible that somewhere during the course of this car’s life, old records (accurate or inaccurate) may not have been updated or purged from all fifty states’ records.
Other common reasons that a title might not be “clean” is if the owner is going through a divorce, bankruptcy, or other legal proceeding in which there may be a claim on the car. It is not unusual for owners to illegally dispose of assets, including classic cars, if they think that they might have to forfeit all or part of their ownership. You, as the buyer, will have no way to know this. It is not recorded on the title.
There are also ways to “wash” a branded title through another state so that it appears to be “clean.” A branded title is usually issued to cars that have suffered significant damage due to an accident, flood, theft, or other reason. The seller may have what appears to be a “clean” title in hand, and you won’t know of any problems until you try to title the car yourself.
The problem is exacerbated with collector cars because people often buy cars that they do not title or register. They keep these cars for long, sometimes very long periods
of time. Then they sell the car by giving the new owner the title from the previous owner. Without getting into the legalities of this practice, it is fraught with risk. Since the seller never titled the car, they are passing along any potential problems to the new buyer.
We haven’t even touched on the fact that some states, New York included, do not issue titles on vehicles over a certain age. They issue “Transferable Registrations” which have no provisions to record liens. I can’t tell you how many times I’ve looked at cars that were represented to have a clean title only to find that it had no title at all.
The fact is that a title, “clean” or otherwise, does not guarantee that you own a car or will be able to register/title it. In order for you to take ownership of a car, the seller has to have the legal right to sell it, regardless of whether they have a title for it. Always have a second document, usually a Bill of Sale, that makes this clear.
Many documents that I’ve seen that have been drawn up by attorneys include phrases such as “Seller has full authority to convey, transfer and sell the Property to Purchaser, and Seller does not require the consent or approval of any third party,” “The Property is free and clear of all liens and encumbrances of any nature whatsoever,” and “The seller will pay all legal expenses arising out of any lawsuits that are a result of the sellers actions as relates to this transaction.” This last one usually makes a seller think twice. And if they do, you should wonder why.