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Automobile Fraud: 2.5.2.8 When a New Car Is Damaged Before Delivery

If a new car is damaged in transit to the dealer, there will be a transit damage repair order in the dealer’s file. The dealer will also have submitted a transit damage repair claim or invoice to the manufacturer for any damage that occurred in shipment. The manufacturer would then submit a claim to the transport (trucking or railroad) company. Transit damage should also be reported on the driver’s delivery receipt.

Automobile Fraud: 2.5.3 Wholesalers and the Vehicle’s Other Dealer Transferors

Key sources of information in many car fraud cases are wholesalers and dealers in the vehicle’s chain of title before it was transferred to the dealer who sold the car to the client. These prior transferors are potential defendants and can speak to the knowledge of the car’s defects that was passed on to each subsequent transferee. The identities of these parties will appear either on the assignment sections of the vehicle’s prior titles or on separate reassignment documents that should also be filed with the state department of motor vehicles.

Automobile Fraud: 2.5.4 Auctions

Millions of cars are sold at auction every year.203 Auction companies generally are not transferors or transferees and so neither appear in the chain of title nor make or receive odometer disclosures in their own name.204 Sometimes a search though Carfax, or a similar service (AutoCheck in particular), will show that the car has been sold through an auction, as some auctions have agreed to report information to these services.

Automobile Fraud: 2.5.5 Secured Creditors

Secured creditors repossessing and selling cars will appear in the chain of title as the lienholder. A secured creditor will be easy to identify because of its name (although the name of a financial institution as owner may also indicate a leased car). In some states the secured creditor will obtain a repossession title in its own name after repossession. In other states the title chain will have a gap, a consumer having title, but the next sale going from the lienholder to the next buyer, with no evidence of a transfer from the consumer to the secured creditor.

Automobile Fraud: 2.5.6 Floor Plan Financers

Floor plan financers help dealers finance the cars they display for sale.212 If a dealer or wholesaler in the chain of title had a floor plan financer, find out the mechanics of the floor plan financing arrangement. As floor plan financers usually have significant assets, it is always worthwhile to investigate whether a floor plan financer participated in the fraud. Even if the floor plan financer is not itself culpable, it may be holding assets of the dealer against which a judgment can be collected.

Automobile Fraud: 2.5.7 Lessors and Lessees

If either a summary title history or a complete title search (including registration documents) uncovers a lease history, then record retention requirements will be somewhat unique. Federal law requires that lessors obtain certain information about the vehicle from the lessee.

Automobile Fraud: 2.5.9 Insurance Companies and Body Shops

Insurance companies and body shops who take possession of wrecked, flood-damaged, or stolen vehicles must retain records of that vehicle because such entities will fall within the federal definition of distributor—a person that sold at least five motor vehicles during the prior twelve months for resale.221 Federal law requires that distributors retain for five years at their primary place of business a photostatic, carbon, other facsimile, or electronic copy of each odometer statement and power of attorney they receive or issue, in an order t

Automobile Fraud: 2.5.10 Manufacturers

Manufacturers keep excellent records of all their cars in order to keep track of the warranty period and any warranty work performed, as well as to issue recall notices and track recall repairs performed. The odometer reading at various service intervals may be recorded. These repair records will also show repairs done on “demonstrator” cars before they are sold at retail, and mileage at each warranty service. The nature of the repair work will also be relevant in cases involving an undisclosed history of mechanical problems.

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.