Check-kiting is a form of fraud where someone continually writes bad checks between their accounts, but you need to know that shady car dealers might also “kite” a used car. And the good news is that it can easily be avoided if you follow this simple advice.
Suppose you own a car with a lien on it and you decide to trade it in at a dealer. The dealer promises to pay off the outstanding lien and you go on your way in your new car. In a perfect world, the dealers would always pay off those liens before they sold the trade-ins, but that may not happen.
Let’s say the dealer is having a bit of a cash flow problem. And they really want to pay off the liens on the cars they’ve gotten in. They’ll just take care of it... later. Or sometimes not at all.
Then someone buys the car and drives off with it, not knowing a bank still has a lien on the title. Does that seem unlikely? It happens. And the solution is simple - if you are careful at the time of purchase.
When you buy a car from anyone - a dealer or an individual - ask to see the title before you agree to seal the deal. There is a space on the title for “Leinholders.” If there is anything written in that spot, there might be a problem. For you to acquire good title to the car you must buy it free and clear of all liens.
If the dealer has paid off the lien, they should have a lien termination statement which they will give you with the title. If they have no LTS, then they are not in a position to sell you the car.
I’ve gotten calls about this from people at both ends of the transaction. One was a seller who traded in his car to a dealer that re-sold his old car without paying off the loan. A month later, the bank began inquiring about payment. Shortly after, that dealer went out of business.
I’ve also gotten calls from people who bought cars with titles which were still subject to a lien. Somehow they missed the lien notice in the flurry of the sales paperwork vortex.
I also recommend you insist on seeing the title before you agree to purchase for another reason. It is the only way you can tell if the car has an appropriate title. You know: Not “Salvage” or “Rebuilt”, and so on. Of course, if the seller has told you the car is one of those things, fine. I’ve just met people who bought cars only to find out later that the titles looked funny— or at least they would have looked funny if they had looked at them before they ended the transaction.
So, check out the title before you agree to buy. It might help you avoid buying a kited car.
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Steve Lehto has been practicing law for 24 years, almost exclusively in consumer protection and Michigan lemon law. He wrote The Lemon Law Bible and Chrysler’s Turbine Car: The Rise and Fall of Detroit’s Coolest Creation.
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