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Buyer Beware: Flood-Damaged Vehicles from Colorado Entering the Salvage and Used Car Marketplace

by Howard Nusbaum, National Salvage Vehicle Reporting Program (NSVRP)  -   April 8, 2014

Unbranded and Under-branded Vehicles Damaged in the 2013 Colorado Floods Sold by Unscrupulous Dealers

On September 9, 2013, rain began falling over drought-stricken areas of Colorado. Over the next six days, as much as 20 inches of rain fell in some parts of the state, leading to eight deaths and over $2 Billion in damages to homes, infrastructure and property. The ravaging floods tossed vehicles around like matchbox cars, submerging transmissions, engines and electronic parts, sometimes for extended periods of time. As a result of the exposure to water, many of these flooded cars suffered irreparable damage. Insurance companies even deemed many as total losses.

These unbranded severely damaged total-loss vehicles can be repurchased by unscrupulous dealers, who clean them up and pass them off as basic used cars, never mentioning flood damage. They sometimes ship the cars thousands of miles away, where unsuspecting consumers purchase them without a clue about their murky pasts. Limitations and loopholes in the laws of many states may actually provide legal “cover” for these corrupt dealers.

One of the key protections available to the public comes in the form of state mandated branding of titles as salvage when vehicles have been subject to accident or flood loss. The ideal form of branding to notify and protect the public is achieved in those states that require salvage branding for vehicles that have had a total loss claim paid on the vehicle, and that require extensively damaged vehicles to be assigned a brand of ‘non-repairable,’ making them usable only for parts and scrap. The non-repairable brand protects the public from unsafe vehicles being put back on the road, as well as protecting the public from cars being bought simply for the paperwork, which can be reused to cover the identity of stolen vehicles under that Vehicle Identification Number (VIN).

Over the years, a number of states have instituted laws that strip the public of a significant portion of these protections, removing the non-repairable brand requirement, allowing branding to be based upon subjective, non-testable criteria or even allowing the owner to make a subjective determination as to branding, as in Colorado. Furthermore, in some states, once a vehicle reaches a certain age – typically six to seven years – the vehicle is exempted from having any provision for branding. Since the average age of a car on the road today is more than 11 years old, as many as 75% of all total loss vehicles might be exempted from branding, meaning they could be resold in the salvage and used car marketplace with clean or under-branded titles and undisclosed damage to unsuspecting consumers in Colorado and throughout the country, as we have seen happening with Hurricane Sandy-damaged cars.

In Colorado – as in many other states across the country – current statutory language contains loopholes and exemptions that appear to ‘legalize’ inaccurate and potentially harmful branding by exempting vehicles 6 model years or older from any branding requirements, and by allowing the vehicle owner or insurer to make the determination of branding classification.

Improperly branded flood total loss vehicles represent a special risk to consumers. These vehicles tend to suffer from progressive corrosion, electrical failure, unhealthy mold and other problems, but they do not show any obvious indications of being damaged when they are superficially cleaned up. Furthermore, only highly sophisticated mechanical repairers and franchise dealer service departments have access to the required diagnostic equipment and the mechanical and technical ability needed to dismantle electrical, computerized and mechanical components to make a determination of the extent to which water has damaged a vehicle. In cases where components have failed, the testing process also requires access to an inventory of replacement components to swap out to confirm multiple component system failures. Even then, repair estimates are uncertain until the repairs are practically complete; neither insurance claim representatives nor vehicle repairers have the diagnostic equipment or skills required to make a determination in the case of known flood-damaged cars as to whether electrical problems do or do not exist and whether any components damaged by water may have been repaired or replaced in such a way as to not cause further issues to subsequent owners. Flood cars often show no signs of the insidious and progressive nature of water/flood damage until electrical systems or transmissions fail, or anti-lock brakes or airbags malfunction.

Flood cars pose even more of a threat when they are viewed in online photographs and offered for sale over the Internet with undisclosed damage history. With the loopholes and exemptions in Colorado’s branding laws, it is likely that only 20 to 25% of the vehicles severely damaged in recent floods will be subject to the branding that would help keep these vehicles off of the roads and from lining the pockets of criminals. 

Shortly after the recent series of floods in Colorado, NSVRP provided officials in Colorado with an early ‘flash report’ of problems uncovered, including:

  • Exemption from salvage branding requirements of any “vehicle whose model year of manufacture is six years or older at the time of damage”;
  • No process by which an owner or insurer can voluntarily brand a vehicle six model years or older;
  • No requirement that any vehicle for which an insurer has paid a total loss claim be considered a salvage vehicle;
  • No separate flood salvage brand;
  • No non-repairable/junk/parts only brand; and
  • Allowing the owner or insurer to make the determination of whether a vehicle must be branded.

NSVRP was also able to provide samples of unbranded and under-branded flood vehicles being offered for sale at Denver auto auctions, as well as recommendations for a comprehensive approach to resolving those problems. NSVRP subsequently shared that information with other states to warn them of the potential for inaccurately branded vehicles with undisclosed flood damage history offered for sale in their jurisdictions. NSVRP continues to coordinate with Colorado to track the future commerce in these and other vehicles in order to protect the public and to identify downstream parties who may be placing the public at risk.

The National White Collar Crime Center offers a course to help law enforcement officials identify sales of used and salvaged vehicles that may defraud consumers and enrich criminal organizations. For more information on this class, please visit http://www.nw3c.org/training/specialty-training.

If you would like more information on auto salvage auction fraud, or resources you can use to help identify and prosecute it, you can also visit www.NSVRP.org or contact NSVRP at Administrator@NSVRP.org. The National Salvage Vehicle Reporting Program was founded to support law enforcement and to promote and support efforts to advance the National Motor Vehicle Title Information System (NMVTIS).

mercedes
Branding Violation? NO Potential Hazard? YES

This 2002 Mercedes-Benz was offered for sale at a Denver auction under a clear, unbranded title in October 2013. Despite having sustained severe flood damage of the type that renders many vehicles unreliable and subject to regular intermittent or permanent failures, this luxury compact is exempted from branding because it is more than five model years old. An unscrupulous dealer could purchase this vehicle and offer it for sale to the public with a clean title and without disclosure of prior damage.

 


Thumbnail image: 117254953 Copyright Anton Oparin, 2014 Used under license from Shutterstock.com

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