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Buyers, Beware of Soggy Cars

Posted on: Saturday, 17 September 2005, 00:00 CDT

Sep. 16--Planning on buying a used car in the next few months? You might want to give it the sniff test.

Insurance and legal experts warn that thousands of water-logged cars plucked from the foul-smelling floodwaters left by Hurricane Katrina could end up being sold to unsuspecting consumers across the United States.

"There could be a flood of flood-damaged cars making their way into the stream of commerce," said Kansas City lawyer Bernard Brown, a national expert on salvaged cars. "I'd be really surprised if we aren't talking about six figures."

Estimates range from 250,000 to 500,000 damaged cars in New Orleans. But Katrina also ravaged Mississippi and Alabama, prompting legal experts to predict that the number of storm-damaged cars could soar.

Insurance investigators fear scam artists -- not reputable car dealers -- already are moving in to pick through the ruins. They buy soaked cars from desperate owners or from salvage yards for pennies, "wash" the titles through states with lax titling laws, and then sell them as cleaned-up cars to unwitting buyers.

While storm-damaged cars are often sold following a disaster, most make their way to neighboring states and beyond, where buyers are less suspicious. Auto professionals in Missouri and Kansas already are on the alert.

"We watch for them, but states farther out may not," said James Burrow, president of the Missouri Professional Auto Dealers Association and owner of Dixie Auto Auction in Malden, Mo. "They have to be sold pretty darn fast. Anything coming out of that area is definitely buyer beware."

Storm-damaged cars also can pose safety hazards. And Katrina promises more threats than most storms because the flooding included saltwater, which is highly corrosive, and toxic waste, which could make the cars rolling health hazards.

The National Insurance Crime Bureau, which works with the insurance industry and law enforcement, sent agents to the Gulf Coast this week to help take inventory of as many flood cars as possible before they get into the hands of unscrupulous dealers.

"We've never mounted anything like this before -- we're trying to get ahead of the curve," said Frank Scafidi, a spokesman for the Palos Hills, Ill.-based crime bureau.

The potential for profit is huge, he pointed out.

"A scam artist can buy a Silverado for pocket change, spend $1,000 on detailing and air freshener and be off to the races," Scafidi said. "He may put it on the market for $25,000 and the buyer thinks he got a good deal."

But within a year a buyer could end up with electrical and engine problems -- or worse.

At the heart of the crime is washing a salvaged car's title, which is not difficult for a sophisticated scammer with enough time and resources, experts said.

Missouri and Kansas require that titles be "branded" with a warning that a car has suffered water damage.

That branding is supposed to stay with the title wherever it goes.

But some states don't require title branding. Or their title agencies are more lenient in how they title cars. By running storm-damaged cars through a weak titling state, unscrupulous dealers can clean them up and sell them in a stricter state.

"Some states are not as diligent as others, especially when it comes to high volumes," said Dick Diklich, an automotive consultant in Liberty, who testifies in court in salvage-title cases.

Diklich is helping federal agents with a case involving a southern Missouri dealer who allegedly washed titles on more than 60 cars that came through Arkansas. Those cars ended up in Missouri and Oklahoma.

A major source of easily washed, storm-damaged vehicles is fleet cars owned by businesses or rental agencies. Often such cars are self-insured, so they don't end up being declared salvage by an insurance company.

But many flood cars are bought from individuals who were paid a salvage value by their insurance company, then turned around and sold the car to a scam artist.

After washing the titles, crooked entrepreneurs may sell them through auctions to used car dealers, or move them into the lucrative market in Mexico. Still others are sold through Internet auctions.

Marge Meyer of Kirkwood, Mo., bought last year what she thought was a sweet-looking 1999 Volkswagen Cabrio through an eBay car auction.

But when it arrived, "it smelled like it had been in a flood," Meyer said. "You didn't want to sit in the car with the windows down …"

After six months and thousands of dollars spent on repairing damages and having the car professionally cleaned, Meyer persuaded eBay to help her get the Houston seller to replace the vehicle.

Investigators said they hope they can prevent as many consumers as possible from suffering similar disappointments.

Cars submerged for more than a week in Louisiana probably are ruined beyond any chance of being cleaned and resold.

Investigators think if they take inventory of enough of them, they can make it easier to identify Katrina's automotive casualties and make it harder to wash titles in other states.

They also noted that the potential onslaught of hurricane-ravaged cars points to a critical need for a national title branding system.

"We know there will be lots of damaged cars turning up again," said Scafidi, of the National Insurance Crime Bureau.

"If we had a national branding law, we wouldn't have this problem now."

SEEKING SOLUTIONS

National Insurance Crime Bureau tips on flood-damaged cars:

--Select a reputable car dealer.

--Inspect for water stains, mildew, sand or silt under carpets, floor mats, in vents and behind the dashboard.

--Have a certified mechanic inspect the vehicle before buying it.

--Ask about the vehicle's history. Ask whether it was in an accident or flood.

--Conduct a title search of the vehicle, which can tell you what state it came from.

--Look under the hood for signs of oxidation.

--Look for signs of rust around electrical and mechanical connections.

--Check to see if aluminum and alloys show a white powder and pitting.

--Look for water lines along the side of the doors.

--Trust your instincts if the deal seems too good to be true.

For more information go to www.nicb.org.

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Copyright (c) 2005, The Kansas City Star, Mo.

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Source: The Kansas City Star (Kansas City, Missouri)

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