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Automobile Fraud: 2.5.11 Service Contract Companies

It may be productive to contact any company that has ever written a service contract on the vehicle. If the consumer purchased a service contract, ask that company whether the contract is in force, and if it was voided, what the reason was for voiding it. It may be that the service contract was voided because that company discovered information about an odometer discrepancy.

Automobile Fraud: 2.5.12 Information About Whether the Dealer Obtained a Vehicle History Report

Whether or not a dealer obtained a vehicle history report before selling a car can be a decisive fact in an automobile fraud case. Proving that the dealer had obtained a report showing the vehicle’s problems satisfies the scienter requirement of a fraud claim. Conversely, if the dealer consistently obtained reports on vehicles it purchased, but did not do so for the vehicle in question, there may be an inference that the dealer already knew of the vehicle’s problems and wanted to maintain the ability to deny knowledge of the problems.

Automobile Fraud: 2.5.13 Absence of Information from Vehicle History Report

The information that is not included in a vehicle history report can be just as significant as the information that is included. If a person or organization that was involved with the car reported some information to Carfax or a similar service but did not report adverse history that it knew, the consumer should explore that person or organization’s motivation.

Automobile Fraud: 2.5.14 Records of Insurance Claims

Insurers pool data about claims made on automobile insurance policies, so that insurance companies and law enforcement agencies can retrieve claims data on a particular vehicle. Obtaining this information can help identify when and where a vehicle was damaged and which insurance companies knew about it. The owner’s own automobile insurance agent may be able to obtain this information for the owner.227

Automobile Fraud: 2.5.15 Information Available from Government Agencies

Sources of assistance and even of free expert witnesses are law enforcement agencies: the state highway patrol, the state department of motor vehicles, the state attorney general’s office, and the National Highway Traffic Safety Administration (NHTSA). Because automobile fraud often is part of a pattern of fraud, such state enforcement agencies may even be familiar with the particular dealer or car auction involved.

Automobile Fraud: 2.5.16 Trade Associations

Trade associations for the entities involved in the sale can be the source of very useful information. Many trade associations have codes of ethics or standards of conduct which their members are encouraged to follow.

Automobile Fraud: 2.6.1 Introduction

Uncovering a fraudulent car sale is only part of an automobile fraud investigation. The other part is determining who is especially culpable for the fraud. The selling dealer is one candidate. But so are wholesalers, auctions, insurance companies, automobile manufacturers, secured creditors in the chain of title, other prior owners, the creditor that finances the sale, the dealer’s floor plan financer,241 body shops, or other dealers.

Automobile Fraud: 2.6.2.1 General

Typically, the selling dealer will not roll back the odometer or arrange for the insurance company to keep its name off a title. The selling dealer instead will fail to disclose or even misrepresent a car’s problem history, when the problem occurred well before the car came into the dealer’s possession, and the problem is not apparent on a cursory examination of the vehicle.

Automobile Fraud: 2.6.2.2 Title Documents Known to the Dealer

A simple step to take in attempting to establish the dealer’s knowledge is to obtain copies of the titling documents that were disclosed to the selling dealer. Because wholesalers and dealers generally do not obtain new titles in their own names, the title that the dealer passed on to the client most likely had a number of assignment sections and even reassignment documents stapled to the title. Is there anything suspicious on this title and related documents? Is there a title brand?

Automobile Fraud: 2.6.2.3 The Car’s Physical Appearance

The next step is to see if anything about the car’s physical appearance should have sent a warning signal to the dealer. If the consumer’s investigation uncovered something suspicious about stickers on the car door, documents in the glove compartment, evidence of a recent paint job, or scratches around the odometer,246 the dealer almost certainly did, or should have, discovered the same thing. The same is the case with the tire code and vehicle identification number.247

Automobile Fraud: 2.1.1 Introduction

When investigating a vehicle sale or financing transaction it is important to understand all aspects of the transaction. Accordingly, this chapter examines investigatory techniques regarding both the sale of the car itself and the financing transaction.

Automobile Fraud: 2.1.2.1 Extent and History

Odometer fraud has been endemic since the first cars were manufactured. The first odometer rollback case was reported in 1923;5 in 1936, one dealer tried to use the defense of “custom of the trade” in a fraud action based on a 26,000 mile rollback.6 More recently, Chrysler Corp.

Automobile Fraud: 2.1.2.2 What Is an Odometer?

The odometer is the motor vehicle instrument that registers the cumulative distance the vehicle has traveled.19 Electronic odometers began to appear after the 1984 model year and have become the predominant means of recording mileage. The remaining major manufacturers phased out mechanical odometers in the early 2000s.

Automobile Fraud: 2.6.2.4 Dealer’s Inspection or Duty to Inspect Car

Proving that the dealer knew or should have known of a rollback or prior damage to a vehicle is critical in many automobile fraud cases. In many jurisdictions, tort law or a statute imposes a general duty on car dealers to exercise reasonable care in inspecting the vehicles they offer for sale. Whether a dealer has a legal duty to inspect a vehicle is discussed in § 8.4.3.4, infra.

Automobile Fraud: 2.6.2.5 Price Paid by Dealer

The price the selling dealer paid for a vehicle is a good indication of that dealer’s culpability. If the price the dealer paid to a wholesaler is far below the price set by the standard wholesale market, the dealer should know that something is suspect. On the other hand, the fact that the dealer paid top dollar is not proof of innocent intent, particularly when the dealer has a course of dealing with the wholesaler and may have knowingly overpaid for the suspect vehicle as consideration relating to other transactions.

Automobile Fraud: 2.1.3 Undisclosed Flood Damage

Flooding due to storms, hurricanes, and swollen rivers often results in large numbers of cars being immersed in water. Flooding causes extensive damage not only to cars in use or garaged, but also to new and used cars on showroom floors and car lots. The extent of flood damage varies depending on whether the flood involves salt, fresh, or muddy water, the level of vehicle submersion, and the length of time between vehicle submersion and treatment.

Automobile Fraud: 2.1.8 Undisclosed History As Stolen Car

It is fraudulent to sell a consumer a “hot” stolen car. The consumer does not obtain good title to the car, even if the title documents are legitimate.59 Frequently, the vehicle identification number (VIN) from a wrecked car is welded onto a stolen car, and a seemingly legitimate title is issued.60 A car with a fictitious VIN may be subject to immediate impoundment.

Automobile Fraud: 2.1.9 Undisclosed Damage to New Cars

A surprisingly common occurrence is for a new car to be damaged before it is delivered to the retail buyer. The car may be damaged before it leaves the factory, in transit to the dealer, or on the dealer’s lot (for example during test drives or when someone smashes into the car sitting on the lot). The car will invariably be repaired, repainted, and sold as new.

Automobile Fraud: 2.1.10.1 Introduction

Most cars sold in the United States, even if manufactured in another country, are delivered in compliance with United States standards and come with a standard U.S. warranty that facilitates repair work in the United States. Sometimes, though, cars manufactured to be used in another country are imported into the United States, and these vehicles can cause certain problems for purchasers. Some models are imported because they are rare or unavailable in the United States.

Automobile Fraud: 2.1.10.2 Odometer Discrepancies in Canadian Vehicles

One of the most common contributors to the sale of fraud cars involves used cars imported from Canada. Because significant numbers of people move between Canada and the United States on a regular basis it is not surprising that a large number of cars move back and forth too. Because cars built for the North American market are often the same or very similar in terms of safety and emissions, importing cars from Canada is often an expedited procedure compared to the importation of cars from other markets.

Automobile Fraud: 2.1.10.3 Warranty and Other Problems

Another problem with vehicles from Canada and other countries is that they do not carry United States manufacturer warranties and, when the dealer runs the vehicle identification number for warranty work, it will discover the vehicle’s Canadian origin and often refuse to perform work under the warranty. Sometimes the manufacturer will offer goodwill warranty coverage, but some manufacturers are reported to be adopting a stricter policy and refusing all coverage.

Automobile Fraud: 2.1.10.4 Identifying a Vehicle As Not Manufactured for the United States Market

One can tell if a vehicle has been imported from Canada by looking under the hood or on the driver’s door for a motor vehicle safety standards decal. Vehicles manufactured for sale in the U.S. will say “United States” or refer to “federal” standards on the decal. Vehicles manufactured for sale in Canada and then imported into the U.S. will have a maple leaf sticker that says Canada. If neither sticker is found, then the vehicle has been brought in from another country.

Automobile Fraud: 2.2.1 Interview with the Consumer

An attorney’s interview with a consumer client is usually the first step in any investigation. The consumer will typically explain a specific problem relating to the car—either suspicion of car fraud or a problem that might lead the attorney to suspect car fraud. Some indicators that should make an attorney suspect fraud include:

Automobile Fraud: 2.2.2 Stickers and Paperwork Found on and in the Car

Evidence of a car’s history can sometimes be uncovered through documentation found on or in the car itself. For example, stickers found on the driver’s door frame may show mileage at a prior repair, oil change, or inspection. The absence or partial removal of such stickers should be treated as suspicious.