Did anybody see this article on MSN Auto concerning car dealerships that are folding and leaving consumers holding the bag? 

Basically, what’s going on is that a good number of auto dealerships that have taken in trades but are closing their doors are simply not making good on paying off the vehicles they’ve taken in as trades, leaving consumers responsible for these payments which were supposed to be paid for by the dealerships themselves.

When a car buyer still owes money on a vehicle he is trading in, the dealer promises to pay off the outstanding loan, and then resells the vehicle. But as more dealers go out of business, some are sticking consumers with the bill. Lenders can then go after the previous owner who thought the debt was paid, or repossess the car from the new owner who assumed it came with clear title.

According to the article, this is not an isolated case or two, but is happening all across the country in various states, including California, Florida and Iowa.

In California, the DMV reported in December at least 319 open investigations on dealerships who have failed to pay off liens or register a vehicle. It also had 1,655 vehicle-transfer complaints against dealers from July to September. In Florida, it’s much the same story – reports are that between March and September of last year, Florida officials deemed valid 103 complaints regarding auto dealers’ delinquent loan payments and received more than 1,886 confirmed complaints of delays in title transfers.

In California, one couple bought two cars in 2001, but the dealership they purchased the cars from has since closed its’ doors and yet in doing so, did not pay off the previous owners’ liens.  The couple suprisngly discovered they were still being held responsible for the debt and owing $40,000 on the old loans.

Many people can barely afford to pay one car payment in this economy, much less two car payments – especially on vehicles they no longer own. I can imagine how horrible this is on a credit record, as well.

According to the article, there are a few states that do have a program in place that require dealers to post substantial insurance bonds to repay victimized car buyers, but not every state has this kind of protection, leaving consumers out in the cold. 

The good news is that California state Senator Ellen Corbett has introduced a bill which would make dealerships responsible for this mess and prove they are paying off a vehicle’s lien before transferring the title. Corbett’s bill would require auto dealers to post bonds as high as $250,000.00 with the California Department of Motor Vehicles so liens could be paid off if a dealership collapses.  The bad news is that this will probably take a while.

So what can you do if you find yourself facing the same situation?  So far, according to experts, not much.

In Washington, officials say they simply aren’t having much luck helping consumers, so they advise hiring an attorney.  I don’t know how affordable it would be for most average American’s to hire an attorney for this kind of thing - especially when the economy is in the tank.

It’s too bad something can’t be done to hurry the process along since so many people are being affected.

Tags: Advice, Car Shopping, Cars Loans, General // 1 Comment »