Certificates of Title and Other Vehicle Ownership Documents
By E. L. Eversman, Esq.
Once a car is manufactured, to be able to purchase, lease, or register it, there must be a legitimate document of ownership allowing transfer of that ownership. We tend to be familiar with car "titles", but we are less familiar with other forms of authorized ownership documents. There are different documents reflecting ownership other than state-issued certificates of title, including manufacturers' certificates of origin, importers' certificates of origin, and later-stage manufacturers' documents. There are also different types of state-issued titles, including the ordinary titles, memorandum titles, salvage titles, and junk titles to name a few. In the United States, motor vehicle ownership documents are governed by state law, which results in considerable variation and a lack of uniformity from state to state. This lack of uniformity allows previously totaled or branded vehicles to have their titles "washed" through the laws of a less restrictive state. The lack of uniformity also creates conflicting requirements for transferring ownership between states and creates the circumstances in which it is easy to make mistakes. As a result, the National Conference of Commissioners on Uniform State Laws (NCCUSL) is in the process of drafting a Uniform Certificate of Title Act to promote consistency in the creation, transfer, and documentation of vehicle titles and to uniformly resolve conflicts which arise with vehicle titles.
Certificates of Origin
When a vehicle is first manufactured, there is no "title" issued to identify ownership of the vehicle. Instead, manufacturers create documents known as "certificates of origin" to identify that the product is a newly manufactured vehicle. These certificates are sometimes called an MCO (manufacturer's certificate of origin), a COO (certificate of origin), or simply CO (certificate of origin). The certificates of origin are intended to serve as temporary ownership documents and are canceled at the time the vehicle is first titled. As a result, when vehicles are shipped to a new car franchise, they are accompanied by certificates of origin.
The new car franchise does not title the vehicles in the name of its establishment. Instead, it holds each vehicle on its certificate of origin, and it is not titled with the state's department of motor vehicles until it is sold to a retail customer. Holding vehicles on their certificates of origin allows franchise dealerships to locate and easily trade vehicles with other franchise dealerships without the complications or expense of titling. Titling is something usually associated with retail use. It is at the time of the initial retail sale that a vehicle is titled for the first time and when the manufacturer's warranty is triggered.
Titles for Ownership Issues
Once titled, to transfer ownership, a vehicle must be re-titled in the name of the new owner. If a car has been financed, states typically allow the finance company to file a lien notice, which is then designated directly on the face of the title as an outstanding security interest in the vehicle. When a lien is emblazoned on the face of the title, anyone buying the car is on notice that a debt is still owed to the finance company or bank; and failure to pay the finance company the remaining amount owed on the car may render the new buyer liable to the finance company or can prevent the re-titling transaction entirely.
Some states provide finance companies with added security by sending the title to the lienholder rather than to the buyer. Allowing the finance company to hold the title ensures that the vehicle owner cannot even attempt to transfer title to a new owner without first paying off the debt. However, this solution sometimes leads to registration issues in those jurisdictions where an owner has to produce the certificate of title to register the car and obtain license plates. To alleviate this problem, some states complement the finance company's retention of the physical certificate of title with the issuance of a "memorandum title" to the owner. This memorandum title provides appropriate proof of ownership enabling the owner to register a car, obtain plates, and have it checked for emissions compliance, but cannot be used to transfer ownership.
Salvage Titles
A salvage title is typically issued on a vehicle which has been declared a "total loss" by an insurance company. The purpose of the salvage title is to alert any subsequent purchaser that the vehicle has been declared a total loss. Not every state, however, requires total loss vehicles to be designated with salvage titles, and some states, also, enable a car issued a salvage title to be repaired and inspected to remove the salvage stigma from it. If the car passes the state's salvage repair inspection, the vehicle is then issued an ordinary title. As a result, salvage cars in one state can be "washed" through another state and returned for sale in the original state - now with a clean, non-salvage title.
What to expect
NCCUSL's Uniform Certificate of Title Act is designed to streamline motor vehicle titling and to bring consistency to titling practices. The Act is obviously intended to ensure uniformity regarding financing, transfer, and claims issues and to resolve problems like salvage title washing. While respecting each state's desire to promote its particular interests, some consistency in titling laws would go a long way toward ensuring that buyers are truly getting what they pay for.
E. L. Eversman
The information provided in this column is for information purposes only and should not be construed as legal advice. You should always consult an attorney licensed to practice in your Country, State, and/or Territory as laws vary from Country to Country, State to State, and Territory to Territory. The author is delighted to share information but cannot be responsible for damage or adversity encountered by reliance upon that information and urges you to consult with local counsel.
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