Surprise! Your car's been 'washed'
It's surprisingly easy for a totaled or flooded car to get a clean title.
NEW YORK (CNNMoney.com) -- When a vehicle suffers significant damage, a state Department of Motor Vehicles will usually "brand" its title with a word like "Totaled," "Flood," or "Salvage."
Most car buyers would steer clear of such markings. And those interested in such cars would expect a huge discount.
Surprisingly, however, it's not that hard to clean up a tarnished title. An unscrupulous seller can take a car to a state with less strict rules and get it re-titled. When the car is sold, the title will say nothing about any damage.
A recent study looking at cars that had their titles branded because of flood damage from Hurricane Katrina found that when those cars were re-titled in other states, they got clean titles in 45 percent of cases.
The study was done by Experian, a company that provides vehicle history data for used car buyers, and Carmax, a national used-car retailing chain.
That's a total of about 7,000 vehicles out of the more than 200,000 that were branded "Salvage" or "Flooded" after Katrina, according to the percentages in the study. (Most "Katrina cars" were never re-titled anywhere else.)
But the mere fact that almost half the cars that were moved out-of-state ended up getting clean titles indicates just how easy "title washing" actually is, said David Nemtuda, director of AutoCheck Solutions for Experian.
A buyer who isn't careful could end up buying a vehicle with potentially dangerous underlying damage. Electrical systems, including things like anti-lock brakes and airbags, might not work, for example.
"There are certainly gaps in the system that allow this to happen," said Nemtuda.
One solution could be for insurance companies to make available lists of vehicles on which they've paid "totaled" claims. That data would include information on cars that had been wrecked, flooded or stolen.
Carmax, Experian, the National Automobile Dealers Association and several auto manufacturers and their trade groups are supporting federal legislation that would require this type of data to be collected from insurance companies and made commercially available.
"We would hope that insurance companies would voluntarily release this information," said NADA spokesman Bailey Wood, "but they don't."
Julie Rochman, executive vice-president for the American Insurance Association, declined to comment on any specific proposed legislation. "I can tell you with 100-percent confidence that the insurance industry doesn't want cars that are flooded and have been listed as total losses back on the road ever," she said.
Legislation to require a database of totaled cars didn't pass this year, but supporters say they will try again next year.
While a database like the one proposed by NADA and Experian would make it easier for consumers to spot "title washing," there are already steps used-car buyers should take.
Potential buyers should purchase a vehicle history report from CarFax or Experian. (Not to be confused with Carmax, the auto retailer, CarFax is another company that provides vehicle history information.) These reports cover only data from government sources, however, so they would not provide information about relatively minor accidents or poor maintenance.
Any car you are seriously considering buying should be thoroughly checked by a qualified mechanic chosen by you.
Even before getting to the point of checking a vehicle's history or having it professionally inspected, there are some things you can look at yourself that could tip you off to serious flood damage, according to Carmax.