flooddamage tall

FEBRUARY 2013

In the wake of Superstorm Sandy, jurisdictions should consider best practices when issuing titles and brands, so as not to facilitate the fraudulent reselling of total-loss vehicles.

When Hurricane Katrina struck the Gulf coast in 2006, few were prepared for the destruction it would leave in its wake. Its mighty winds and waters pummeled homes, businesses and habitats, and more than 500,000 vehicles became casualties of the natural disaster.

Insurance companies deemed these flood-damaged vehicles total losses, yet many of these vehicles were resold under clean titles. The end result: consumers who may or may not have known that a car had endured a saltwater flood, purchased total-loss vehicles from Katrina in locations as far away from the hurricane as California.

When Superstorm Sandy unleashed its fury on the Northeast in the fall of 2012, the potential for this type of large-scale fraudulent reselling of vehicles resurfaced—Sandy damaged at least 230,000 vehicles, according to the National Insurance Crime Bureau. However, new systems and tools, such as the National Motor Vehicle Title Information System and the Junk, Salvage and Insurance Total Loss program are now in place, which means that motor vehicle administrators can identify flood damaged vehicles and help consumers detect fraud and stay safe on the roads.

Detecting Fraud

Fraudulent reselling of vehicles can come in many different shapes and sizes, according to Howard Nusbaum, administrator of the National Salvage Vehicle Reporting Program (NSVRP), a nonprofit law enforcement support organization dedicated to reducing auto theft, title fraud and abuse, and helping control criminal activities related to the exportation of stolen and fraudulently obtained vehicles. He says flood-damaged vehicles from Sandy are being sold over the Internet, in person by the original owner and at salvage auctions.

NSVRP monitors salvage auctions to see if the vehicles being offered up for sale are flood damaged or not. If the organization does come across vehicles that have been affected by Sandy, it tracks them to make sure they are being noted as such as they move through the salvage auction process. “I encourage jurisdictions to use NSVRP as a resource during this time,” says Nusbaum. “Unless the jurisdiction has authority over both the title of the car and the venue where the sale is taking place, it doesn’t know what’s going on [with the title].”

“Based on the information we have from NICB applications and requests and feedback from insurance companies, it looks like about 150,000 cars in New York State are going to be totaled as a result of Sandy. That includes approximately 5,000 new cars that were at dealerships,” says Owen McShane, Director, Investigations, New York State, Department of Motor Vehicles, who also notes that another 6,500 new vehicles were flooded at an import facility for foreign vehicles in Port Newark, N.J. “Jurisdictions should be aware of these numbers,” he says.

Deterring Fraud

“Motor vehicle administrators can help to protect consumers by sending their vehicle title and brand data to NMVTIS as quickly as possible,” says Cathie Curtis, director of Vehicle Programs at AAMVA. “They can use NMVTIS to verify all out-of-state titles before they issue a subsequent title.”

Created by federal law, NMVTIS is designed to protect consumers from concealed vehicle histories by mandating that states communicate title and brand information between jurisdictions to help reduce title washing of branding and undiscovered theft and retitling of vehicles. All insurance companies are required to report total-loss vehicles to NMVTIS on a monthly basis. By utilizing NMVTIS, jurisdictions can work to combat title washing.

“Title washing can occur if a vehicle that is flood damaged is not properly documented or disclosed as flood or water damaged in state title databases and in NMVTIS,” Curtis says. “A state may issue a title with a brand indicating flood damage; however, some type of fraudulent activity may occur that removes the flood brand. This fraudulent activity can be identified when the next state to title the vehicle verifies the vehicle and brand history in NMVTIS and sees the original flood damaged brand or salvage brand, and properly brands the vehicle on the title and in their vehicle database.”

However, it is important to note that because reporting to NMVTIS is based on a 30-day cycle, it is possible that flood-damaged vehicles may appear for titling and registration before their total-loss branding would show up in the database. Motor vehicle administrators should check to make sure their state laws require insurance companies to swiftly and accurately report flood-damaged vehicles. Internal policies and procedures should also accurately capture and carry forward a complete vehicle history, Curtis says.

Keeping Consumers Safe

Vivienne Cameron, senior director of Special Projects at AAMVA, recommends that jurisdictions advise citizens of the potential safety impact these damaged vehicles can cause. “Be vigilant of these vehicles that may be coming into your state without proper notation,” she says. “Be especially wary of vehicles from those jurisdictions that were affected by the superstorm, including Connecticut, Pennsylvania, New York and New Jersey—check NMVTIS to make an informed decision as to how they can be retitled. You don’t want to facilitate fraud or expose citizens to unsafe vehicles.”

“In saltwater flood vehicles, the damage oftentimes rears its head about 12 months later,” says McShane. This type of damage may lead to failures in occupant protection systems and in computer and electrical systems. There is also a possibility of health issues resulting from hidden mold in the vehicle, Curtis says.

Curtis urges motor vehicle administrators to help educate the public about flood damaged vehicles by providing information on their websites and encouraging consumers to obtain a vehicle history report from the NMVTIS access providers, such as Carfax or VinCheck, before purchasing a used vehicle. A list of these providers can be found here.

“Consumers should always be cautious when purchasing used vehicles, particularly during this time, because there will literally be a flood of used cars from Sandy on the market,” McShane adds. “They should look at the car carefully and have it checked by a licensed mechanic, if possible.”

McShane says one telltale sign that a vehicle has water damage is unusual rust. “A lot of these cars with exposure to saltwater are already rusting,” he says. “If you open the hood, you’ll see rust all over the interior engine compartment. You might also see rust coming up from the carpeting and rust in the trunk. That should be an alarm bell if consumers are seeing that.”

“This is really an opportunity for states to consider best practices [when issuing titles and applying brands] to protect consumers from unsafe vehicles,” Cameron says. “There currently is a lack of standardization around brands—some jurisdictions have flood brands while others [such as New York] don’t … It’s important to make sure that a catastrophic brand, like a flood damaged vehicle, is carried over [during the retitling process].”