What's Up with Auto Titles?

Basically, a car title is a legal certificate - also known as a pink slip - that proves ownership of a car. It's issued by the Department of Motor Vehicles (DMV), and lists the current owner's name and address, as well as the make, model and year of the vehicle, the first date sold, the odometer reading at time of sale or purchase, and whether or not there are any liens against the car.

The title is, understandably, a very important document that should be kept in a secure location like a safe deposit box. While that's all well and good, there are a few legal complexities that will come into play when you're buying or selling a car.

At the time of sale, the auto title must be signed over to the new buyer by the seller. It then becomes the responsibility of buyer to register the sale and file the transfer of title with the DMV. A fresh title is then prepared by the DMV and mailed to the new owner, with the buyer listed as the new owner. If or when the buyer wants to sell the car, the whole process starts over again.

Now, we enter the legal world. The title can be termed "clean," meaning there's no claim or lien against the title. There are times that a title is used as a guarantee for a debt or a promise of service - for most people; this lien comes from the bank or finance company that provided the loan to purchase the car originally. The holder of the lien can be considered an owner of the car, which may impact the sale and/or transfer of the title. For example, if a seller is attempting to sell a car for less than the amount that's owed; the lender will still have a security interest in the car. As a potential buyer, you don't want this to happen - you need to the lender to be paid off in full to release their interest in the car so that you can have a clean title.

To avoid buying a car without a clean title, you may want to request a "title check." This is done by contracting with a service to run a DMV check on the title, for a small fee of course. You'll need the Vehicle Identification Number (VIN) that's prominently displayed on the car to run the report. If the VIN from the title doesn't match, or if the title isn't clean, walk away. You don't want to find yourself in the position of paying for a car that you don't actually own.

In addition, there's another way that the title check can help you. Listed on the title will be the mileage from the time the title was issued. Check if the current mileage is greater than the one listed on the title. If it's lower, and there's no good explanation - like some kind of repair issue - this is another red flag that you should walk away. Be sure that all explanations, no matter how sensible, are backed up with records.

In addition, there's another kind of title, usually called a salvage title. There's nothing wrong with buying a car with a salvage title per se, it just means that the car was involved in a accident and has been declared a loss by the insurance company. The rules surrounding this designation vary from state to state. Problems can arise when someone tries to sell you car and doesn't tell you that the car has a salvage title. Salvage titles severely lower the value of a car, so it's important to know what you're buying.

Titles of whatever variety offer a check on both the car and the seller. Titles can and do get lost, but the DMV will be happy to issue one to the owner. If a seller has no title, or refuses to get one or provide you with the VIN number so that you can run your own title check, walk away from the situation. Chances are, you don't want to buy this car.

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