Learned your used car was previously in a flood? Everything you need to know.

Flooding due to severe storms or hurricanes often results in a large number of cars being immersed in water. The extent of the damage varies depending on whether the flood involved salt, fresh, or muddy water, as well as the length of time the vehicle was under water. What most people don’t know, however, is that many of these flood cars are cleaned up and resold on the used vehicle market.

How does a dealer get away with selling a flood car?

The only way to profitably sell a flood vehicle is to conceal its history from the buyer. A dealer can buy a flood car for less than wholesale price, clean the vehicle up, and sell it to an unsuspecting buyer as a clean vehicle at full retail price. Because of lax vehicle title laws, a substantial number of flood vehicles may even come with clean titles.

Why should I care if my car was previously in a flood?

Flood cars present significant performance and safety issues for unsuspecting buyers. For example, a vehicle's electrical and computer systems--including brake and steering systems--are often compromised by water damage. Water submersion may also cause damage to the vehicle's frame or structural components and often leads to mold growth in the car's interior. These problems may not appear for months or even years.

Second, even if the vehicle doesn’t have any physical problems, you almost certainly overpaid for it. A vehicle with a flood history will almost always be worth less than a clean vehicle. The reason is simple: most people won't buy a vehicle with an flood history, and they definitely won't pay clean retail price for it.

Another third reason is that it will be nearly impossible to trade in a flood vehicle. One of the first things a dealer does when evaluating a trade-in is pull a CarFax report. If the report shows a flood history, the dealer is sure to pass on your trade.

I think I bought a flood car, how do I know for sure?

The symptoms of a flood vehicle are pretty obvious, if you know what to look for. Here are the tell-tale signs:

• Musty or moldy smell;

• Rust or flaking metal on the vehicle's undercarriage;

• Electrical components, such as radio, speakers, windshield wipers, or door locks that don't work;

• Any signs of water damage, mud, sand, or silt.

You can also order a CarFax report, which contains information about a vehicle’s history. But keep in mind that these reports don’t always provide a complete picture and there is often a lag between when a vehicle is, say in a flood, and when that information shows up in CarFax’s database. When in doubt, have the vehicle inspected by an expert.

Is selling a flood vehicle illegal?

Not necessarily, at least in Minnesota. Generally, there are four scenarios that can give rise to legal claims under Minnesota law:

• If the vehicle title has a flood “brand” or stamp and the dealer doesn’t tell you;

• If the vehicle is not roadworthy at the time of sale due to the flood.

• If the dealer knows the vehicle has been in a flood and lies to you when you ask about it;

• If the dealer knows that the vehicle has suffered damage in excess of 70% of its cash value due to the flood and doesn’t tell you;

There is quite a bit of nuance to all of these scenarios and a detailed legal analysis is necessary to determine whether the dealer broke the law in your case.

Just learned you bought a flood vehicle?
Get a free consult with auto fraud attorney Todd Murray.

Since 2009, Todd has been helping Minnesotans combat fraudulent auto sales by used car dealers. His work has returned hundreds of thousands of dollars to his clients’ pockets and has improved the legal protections for used car buyers throughout the state. Todd’s clients have described him as “very professional and easy to work with.” He lives in Minneapolis with his wife and four children.

Branded title? No title at all? A guide to common used car title problems.

We frequently hear from used car buyers dealing with a problem with their vehicle’s title. In some cases, the buyer is surprised to learn that their title is branded as “salvage” or “flood.” In other situations, the buyer never gets the title at all. Here’s a quick guide to these unfortunate situations.

I received my title, but found out that it’s “branded.”

A branded title has a permanent notation on it that the vehicle has a serious defect. Here's a list of the title brands used by the Minnesota Department of Motor Vehicles:

• Prior Salvage. This is usually used to indicate that the vehicle has previously been declared a total loss by an insurance company, often because of a prior accident.

• Flood. The vehicle has suffered flood or water damage.

• Reconstructed. The vehicle has been altered by the removal or substitution of essential parts

• Rebuilt. The vehicle has sustained damage in excess of 80% of its cash value and the "Prior Salvage" brand doesn't apply

• Lemon Law Vehicle. This usually indicates that the vehicle has been bought back by the manufacturer under the lemon law.

Minnesota law requires that a dealer verbally tell you about the brand during the sales presentation--they aren't required to disclose it in writing. If the dealer fails to do this, they’ve broken the law. Even, probably, if they didn’t know about the title brand.

A related situation is where the previous owner’s title is clean, but your title comes back branded as “salvage.” This occasionally happens because the Minnesota DVS does its own prior accident database search and will brand your title even if the prior title was clean. This creates a grey area, legally speaking, because the title at the time of sale (the prior owner’s title) is clean. This means, probably, that the dealer doesn’t have to disclose anything to you about the vehicle’s title.

I never received a title at all

A particularly awful form of auto fraud is when the dealer sells a vehicle without being able to provide a title. This puts the buyer in a really bad spot. She can't sell the vehicle without the title and can't prove that she owns it if she is stopped by law enforcement of if she needs to get it back after being impounded.

Fortunately, every used vehicle sale by a dealer creates a warranty that the vehicle has a good title. This warranty of title arises by law--so it doesn't have to be in writing--and you don't have to prove that the dealer knew about the title problem. This warranty of title can only be excluded by specific language that gives the buyer a reason to know about the title defect. This means that an "as-is" statement isn’t sufficient to exclude the warranty of title.

In general, the warranty of title is breached if:

• The dealer fails to provide title after the sale. This must be more than just a delay by either the dealer and/or DMV in processing the buyer's new title. Most often, a dealer fails to deliver title to the buyer when the title is being held by one of the dealer's unpaid creditors.

• The vehicle is subject to an undisclosed lien. Most commonly, this is a lien from the prior owner's lender.

• The vehicle is stolen.

As with most warranty claims, the buyer must give the dealer notice of the breach of warranty of title. If the dealer fails to fix the problem after getting notice, the buyer will have legal claims for breach of the warranty of title.

What are my legal rights if I got a branded title or didn’t get a title at all?

In most of these cases, you will have legal claims against the dealer for your damages, which are usually the diminished value of the vehicle. In some cases, you may be entitled to unwind the sale altogether. In most cases, the dealer will have to pay your attorney fees and court costs if your case is successful.

Found out your title is branded? Never got a title at all?
Get a free consult with auto fraud attorney Todd Murray.

Since 2009, Todd has been helping Minnesotans combat fraudulent auto sales by used car dealers. His work has returned hundreds of thousands of dollars to his clients’ pockets and has improved the legal protections for used car buyers throughout the state. Todd’s clients have described him as “very professional and easy to work with.” He lives in Minneapolis with his wife and four children.

Learned your vehicle is salvage? Everything you need to know

One of the most serious type of auto fraud is the concealment of a vehicle's salvage history. A “salvage” vehicle means one that was declared a total loss by an insurance company, often because of a serious accident or collision. It is believed that millions of salvage vehicles are patched up and sold to unsuspecting consumers each year.

How does a dealer get away with selling a salvage vehicle?

The only way to profitably sell a salvage vehicle is to conceal its wreck history from the buyer. A dealer can buy a salvage car for less than wholesale price, make cosmetic repairs, and sell the vehicle to an unsuspecting buyer as a clean vehicle at full retail price. For example:

As long as the dealer conceals the wreck history from the buyer, trafficking in salvage vehicles can be a profitable practice for a shady used car dealer.

why should I care if i have a salvage car?

There are three main reasons.

Most importantly, it’s possible that a salvage vehicle could be unsafe to drive. A serious collision can result in frame or structural problems. Once a car's structure is compromised, it may not be possible to restore its original integrity. This can pose serious safety risks if the vehicle is ever in another accident. The damaged frame will probably not perform as the manufacturer intended it to, which can expose passengers to significant injuries or even death.

Second, even if the vehicle isn’t unsafe, you almost certainly overpaid for it. A vehicle with a salvage history will almost always be worth less than a clean vehicle. The reason is simple: most people won't buy a vehicle with an accident history, and they definitely won't pay clean retail price for it. Depending on the circumstances, a salvage history may diminish a vehicle's value by over fifty percent.

Third, you’ll never be able to trade in a salvage vehicle. One of the first things a dealer does when evaluating a trade-in is pull a CarFax report. If the report shows a salvage history, the dealer is sure to pass on your trade.

I think my vehicle is salvage. How do I know for sure?

Here are a few tips for learning whether your car was previously in an accident:

• Get a vehicle history report from Carfax. These reports have alerts if there’s an accident in the vehicle’s history.

• Request a title history from the Department of Motor Vehicles. Depending on how far the title history goes back, it may reveal a salvage history.

• Get it inspected by a body shop. Tell the body shop that you suspect that the vehicle has been in an accident and that you want them to examine it to confirm. If the inspection reveals a prior accident, ask them whether there is any structural damage or safety concerns. Also ask whether the signs of the accident would have been apparent to a knowledgeable car dealer. And be sure to get an estimate for any recommended repairs.

Selling a salvage vehicle has to be illegal, right?

Not necessarily, at least in Minnesota. Generally, there are four scenarios that can give rise to legal claims under Minnesota law:

• If the vehicle title has a salvage “brand” or stamp and the dealer doesn’t tell you;

• If the vehicle is not roadworthy at the time of sale due to a safety issue.

• If the dealer knows the vehicle has been in an accident and lies to you when you ask about it;

• If the dealer knows that the vehicle has suffered damage in excess of 70% of its cash value and doesn’t tell you;

There is quite a bit of nuance to all of these scenarios and a detailed legal analysis is necessary to determine whether the dealer broke the law in your case.

Just learned you bought a salvage vehicle?
Get a free consult with auto fraud attorney Todd Murray.

Since 2009, Todd has been helping Minnesotans combat fraudulent auto sales by used car dealers. His work has returned hundreds of thousands of dollars to his clients’ pockets and has improved the legal protections for used car buyers throughout the state. Todd’s clients have described him as “very professional and easy to work with.” He lives in Minneapolis with his wife and four children.

Learned your odometer was rolled back? Everything you need to know.

According to the National Highway Traffic Safety Administration, over 450,000 vehicles are sold every year with false odometer readings. The NHTSA says this rampant fraud costs car buyers over $1 billion dollars annually. If you just learned that you are one of these unlucky car buyers, here is everything you need to know.

How does someone roll back an odometer?

Scammers use digital equipment that plugs right into a vehicle’s internal computer system to alter the mileage. Indeed, a quick search for “odometer rollback tool” returns a bunch of “mileage correction” devices:

Why do scammers tamper with odometers?

Easy. Rolling back the odometer allows a heavily-worn car to be sold for a newer-car price. For example, a 2013 Toyota Camry might sell for about $10,000 with 100,000 miles on it. With 200,000 miles on it, though, it sells for only $7,300. An unscrupulous car dealer might see that $2,700 as easy money.

i think my car’s odometer was rolled back. How do I know for sure?

Here are a few tips for finding a rolled-back odometer, either before or after the sale.

• Get a vehicle history report from Carfax. These reports have alerts if there’s an odometer discrepancy in the vehicle’s history.

• Check the vehicle for past maintenance records. Oil change and other maintenance records always show the mileage at the time the vehicle was in the shop. Be sure to look in the glovebox and under the seats for left-behind records. You should also check the windshield and door frame for past maintenance stickers.

• Request a title history from the Department of Motor vehicles. Depending on how far the title history goes back, it may reveal odometer discrepancies.

• Inspect the wear and tear on the vehicle. Take the car to mechanic to see if they can find evidence that the car is more “used” than it appears.

WHY SHOULD I CARE IF MY vehicle’S ODOMETER was altered?

Two reasons.

First, you overpaid for the vehicle. Probably by a lot.

Second, you’ll never be able to trade the vehicle in. One of the first things a dealer does when evaluating a trade-in is pull a CarFax report. If the report shows an odometer discrepancy, the dealer is sure to pass on your trade.

Similarly, if you try to sell the vehicle to a private party, you’ll have to disclose the odometer discrepancy. No car buyer in his right mind is going to buy a vehicle with a rolled back odometer.

tampering with an odometer has to be illegal, right?

Definitely. Both federal and Minnesota law prohibit odometer tampering. The law also prohibits sellers from knowingly making a false odometer disclosure even if they weren’t the one who rolled back the odometer.

If my vehicle’s odometer was rolled back, what are my legal rights?

If you’ve been victimized by odometer fraud, the law allows you to sue the perpetrator. If you win the case, the court must award you $10,000 or three times your actual damages, whichever is greater. Further, the defendant has to pay for your attorney fees and court costs.

In addition to these civil penalties, the law provides for criminal penalties for odometer fraud.

Just learned your vehicle’s odometer was rolled back?
Get a free consult with auto fraud attorney Todd Murray.

Since 2009, Todd has been helping Minnesotans combat fraudulent auto sales by used car dealers. His work has returned hundreds of thousands of dollars to his clients’ pockets and has improved the legal protections for used car buyers throughout the state. Todd’s clients have described him as “very professional and easy to work with.” He lives in Minneapolis with his wife and four children.

"As is" isn't a free pass to rip you off

We get a lot of calls from people who have been fraudulently sold cars with serious defects. When the buyer confronted the dealer about the problem and demanded her money back, the dealer insisted that the car was sold "as is," and so it's "not my problem." But the dealers don't understand the law--there are several reasons why a buyer has legal claims even when the car is sold as is. Let’s break down a few of them here:

• The car was sold with a warranty or a service contract. Under federal law, a dealer can't disclaim "implied warranties" in a sale if it provided a warranty or a service contract.

• The dealer lied about the vehicle’s condition. Under Minnesota law, a dealer can't sell a vehicle as-is if it makes a false statement about a serious defect.

• A dealer can't get off the hook for specific statements it made about the car. A dealer’s verbal statements about the car, called express warranties, can never be disclaimed. This means that if the dealer said "the car has never been in an accident," or or "the check engine light is only on because the car needs a new oxygen sensor" when it actually needs a new engine, it can't squirm out of those untrue statements by hiding behind "as is."

There is a lot of nuance to these scenarios and a detailed legal analysis is required before it’s clear whether you’ll be able to defeat “as-is” in your case. But it’s important for buyers to know that just because their car was sold “as-is” doesn’t mean that they’re out of luck.

Sold a vehicle “as-is” and wondering if you can do anything?
Click to learn the types of cases we handle.

How car dealers fraudulently manipulate the interest rate of a loan

Another type of auto fraud related to the vehicle's financing is when the dealer incorrectly discloses the financial terms of the loan. This dishonest practice is designed to dupe the buyer into thinking that the loan is more favorable than it really is.

Under the Truth in Lending Act, the dealer must accurately disclose the amount financed, the finance charge, and the annual percentage rate. Federal law requires that these terms be disclosed in the so-called Truth in Lending box (pictured above). The main point of the Act is to require transparent and consistent disclosure of finance terms so that buyers can easily compare multiple loans and decide which one is best.

Here's what the key terms mean:

Amount Financed. This is the total amount of money you are borrowing from the lender.

Finance Charge. These are all of the charges imposed as a result of the extension of credit. This obviously includes interest, but should also include any other charge that a buyer would not have to pay if it was a cash transaction.

What a shady dealer might do is to manipulate these disclosures to distort the true cost of the credit. The most common way a dealer does this is add a finance-related charge to the "Amount Financed" total rather than the "Finance Charge" total. This little trick will make the interest rate look lower than it really is.

Here's an example. Let's say you're buying a used car for $10,000. The annual interest rate is 10% and you will pay it off over 5 years (60 months). So the $10,000 would go in the Amount Financed box because it's the amount you're borrowing. And the interest amount ($2,621.25) would go in the Finance Charge box.

Because you're financing the transaction, the dealer requires that a GPS unit be installed so that it can locate the vehicle for a repossession if you fall behind on payments. The dealer charges you $500 for the GPS unit. Because the dealer allows you to roll this $500 charge into your loan, it goes in Amount Financed box right? Wrong. The GPS fee should be a Finance Charge because the dealer only requires these GPS units for buyers that finance. It doesn't require them for cash buyers. By fraudulently putting the GPS fee into the Amount Financed box, the dealer keeps the APR at 10%. But if the GPS fee was put in the Finance Charge box where it belongs, the APR jumps to 12.33%. You can verify my math if you like by using this online APR calculator.

The takeaway? Make sure you carefully review the terms of your loan to make sure the dealer isn't trying to scam you. Review every charge and ask yourself would the dealer charge this in a cash transaction? If the answer is no, then it should be a finance charge and disclosed accordingly. If the dealer improperly discloses the financial terms or misstates the interest rate, it likely has violated the Truth in Lending Act. This would give rise to claims for statutory damages, actual damages, and the dealer would have to pay your attorney fees and court costs.

Conditional delivery: how car dealers use it to scam buyers

If you've ever bought a vehicle from a dealer and financed the purchase, chances are you signed something called a conditional delivery agreement. If you read this agreement carefully, it states that the dealer has the right to cancel the sale if the dealer can't assign your auto loan to a lender on terms agreeable to the dealer. In other words, if the dealer changes its mind about the deal, it has the right to unwind the transaction. This provision, typically in the fine print of the sales contract, is the source of one of the most widespread auto frauds and applies to both new and used car sales. Here's how the scam works: you agree to buy a vehicle and you fill out a credit application for financing. The dealer tells you that you've been approved for the loan and you sign the loan agreement and other typical sales paperwork, which contains the conditional delivery language. You either don't notice this provision because it's in the fine print or the dealer tells you it's nothing to worry about. So you give them a cash down payment and turn over your trade-in. The dealer gives you the keys to your new car and you drive it home thinking you're all set.

But you're not. A few days later, the dealer calls you and tells you that your financing "fell through" and that you need to bring the vehicle back and sign a new loan agreement. If you complain, they might threaten to repossess your new vehicle or even to call the police and report it stolen. So you go back to the dealership. And you learn that your trade-in has already been sold and that the new loan that they're demanding that you sign has a higher interest rate than the one you originally agreed to. Although you don't want to sign this new agreement, you don't have a choice because your trade-in is gone and they've threatened to repossess your new vehicle and keep your downpayment if you don't agree to the new, less favorable, loan on the spot. You need the new vehicle to get to work and to drive your kids to their activities, so you reluctantly sign the unfavorable new loan.

Dealers call this practice conditional delivery or spot delivery. Consumer advocates call it a "yo-yo" scam. Either way, it's a blatantly unfair and one-sided practice. The dealer doesn't want you to think about the deal overnight, it wants the deal closed on the spot. On the other hand, the dealer wants to keep its options open after you've driven the car off the lot. It doesn't want to be rushed into a hasty deal. The conditional delivery agreement makes the deal final for the buyer, but not for the seller.

Sometimes the yo-yo scam is simply the dealer re-thinking the terms of the sale after the fact. Other times, it's a deliberate scheme from the beginning to inflate the finance costs. There's evidence that dealers target customers with poor credit or low income. In other words, dealers use the yo-yo scam to rip off people who can least afford to be ripped off.

Although the conditional delivery provision in the contract gives the dealer some legal cover, there are ways to attack this unfair practice through a lawsuit. If you've been a victim of a yo-yo scam, you should discuss the situation with an attorney right away.

Mechanical problems after buying a vehicle? What you need to know.

used car (as-is, no warranty): probably no legal protections

Minnesota law makes it challenging to bring a case for mechanical issues on used cars that were sold as is. The only clear-cut way to defeat as-is would be if the dealer provided you with a warranty or service contract. The warranty, though, likely has to be the dealer’s warranty, not a warranty through a third party.

Another possible way around “as-is” is when the dealer lies about a vehicle’s condition. But this type of case may not require a dealer to pay the buyer’s attorney fees, so you have to do a cost-benefit analysis before paying an attorney to handle the case.

The law is stronger if you vehicle has an undisclosed prior accident, flood, or odometer rollback, but mechanical issues on as-is vehicles can be difficult to do anything about.

used car (with warranty): federal law protects you

The Magnuson-Moss Warranty Act is a federal law that provides a legal claim against anyone who fails to honor their obligations under a written warranty--even if the vehicle was bought used. The MMWA only applies to consumer goods, which are goods that are normally used for personal, family, or household purposes. The MMWA gives buyers a legal claim for damages against anyone who doesn't honor their obligations under a written warranty or vehicle service contract. The Act also requires the warrantor to pay the buyer's attorney fees and costs if the buyer brings a successful case.

To bring a viable case under the Act, you will likely need to have a mechanic inspect your vehicle and be willing to testify that the problems should be covered by your warranty.

New car — Minnesota’s lemon law protects you

Most people use the term "lemon" to describe any vehicle that has repeated problems. But in Minnesota the "lemon law” is a statute that protects buyers of new vehicles that have problems that are covered by a warranty and that can't be fixed.

There are six basic elements to a lemon law claim in Minnesota:

• (1) The defect has to be covered by the manufacturer's warranty.

• (2) The defect has to arise and be reported to the manufacturer or authorized dealer within two years of the date of purchase or within the term of the manufacturer's warranty, whichever date is earlier. Although there are certain circumstances where this time period can be extended, in general, the lemon law doesn't protect you against problems that crop up after two years.

• (3) You have to give the manufacturer a reasonable opportunity to fix the defect. If you've given the manufacturer four or more opportunities to fix the same problem, or if they've had your vehicle for 30 or more days, the law presumes that they have had a reasonable opportunity to fix the issue. On one of these attempts, you have to give the manufacturer written notice of the problems. Also, if the problem affects the steering or braking systems, you may only have to allow one repair attempt.

• (4) The defect has to still be present after the manufacturer has had a reasonable opportunity to fix it. In Minnesota, at least, the court is going to want to know whether there is still a problem.

• (5) The problem has to substantially impair the use or value of the vehicle. This is a subjective test that is fact-specific and is usually decided on a case-by-case basis.

• (6) The defect can't be caused by your negligence or misuse of the vehicle. You can't abuse or neglect your vehicle and then blame the manufacturer for not being able to fix it.

Before starting a lawsuit under Minnesota's lemon law, you have to engage in an Alternative Dispute Resolution process if the manufacturer offers one. The manufacturer of your vehicle will be able to give you information about their informal dispute process. This ADR process is not binding, though, and you can bring a lawsuit in court if you believe the ADR result is unjust.

If you bring a successful lemon law claim, you have the choice of a refund or replacement. The refund has to include the full purchase price of the vehicle, although there may be an offset for the mileage you've driven the vehicle. If you elect a replacement vehicle, it has to be one of comparable to the one you're returning. In addition, the manufacturer has to pay for your attorney fees and costs for bringing the lawsuit.

When Buying a Used Car, Watch Out for Worthless Service Contracts

Buy a new or used car these days and you can expect the salesperson to pressure you to buy a service contract or "extended warranty." For a fee, which is usually rolled into the financing, these products provide repairs or maintenance for a certain period of time, say 2 years or 24,000 miles. But they rarely provide much benefit to the buyer and often only serve to pad the dealer's bottom line.

Here's an example of what I mean. In a recent case, our client bought a used vehicle with over 100,000 miles on it. The client also bought a service contract for an additional $2,500 or so. The service contract lasted for 5 years or an additional 100,000 miles. Our client rolled the cost of the service contract into his loan for about $50 a month. At this point, you might be thinking this sounds like a pretty good deal.

However, the fine print of the service contract provided for a maximum reimbursement of only $3,000, less a $100 deductible. So the maximum reimbursement was actually $2,900. Further, a great deal of possible mechanical problems were excluded from coverage.

 So, our client paid $2,500 for the right to be reimbursed $2,900. In other words, he paid $2,500 to potentially receive an additional $400, but only if: (a) a problem occurred; (b) the problem occurred during the term of the service contact and (c) the problem wasn't excluded from coverage. He would have been better of declining the service contract and putting the $50 a month into a savings account. The savings account could have been used for any repair at any time. And if no repairs are necessary, he could have used the money for something else.

Before agreeing to buy any service contract, make sure you understand the total cost (not just the monthly cost), the total amount of coverage, and what is covered and what's not. Don't rely on the salesperson to tell you these things, read the terms for yourself. And if you don't understand the terms, it probably doesn't make sense to buy it.