Fundamentals of Buying a Car in America: Transfer of Ownership
If you're a tourist, a student, or on business, buying a car (or a van or an RV or a motorcycle) in America as an international visitor can be confusing. Buying, registering, and insuring a vehicle in America is not at all straightforward if you don't live here or have just moved. That's why we're putting together this series, called Fundamentals of Buying a Car in America, to help de-mystify the subject. This article focuses on the fundamental of ownership transfer.
If you're a tourist, a student, or on business, buying a car (or a van or an RV or a motorcycle) in America as an international visitor can be confusing. Buying, registering, and insuring a vehicle in America is not at all straightforward if you don't live here or have just moved.
That's why we're putting together this series, called Fundamentals of Buying a Car in America, to help de-mystify the subject.
This article focuses on the fundamental of ownership transfer. Future articles will focus on the fundamentals of insurance, registration, selling your vehicle, and more. Sign up for our newsletter to read each article in our Fundamentals series as soon as it is released.
Everything that follows is generally applicable to all vehicles in the United States, with a few exceptions (mopeds, snowmobiles, all-terrain vehicles/off-highway vehicles, etc.).
STARTING WITH THE GOAL IN MIND: OWNING THE VEHICLE
It's usually easiest to define what it is that we want, then work backwards from there.
So let's start with the goal of the purchase: to legally own the vehicle.
You legally own a vehicle when
you (or your agent) are in possession of the vehicle’s title, AND
the title is properly assigned by the party(ies) named on the title.
If you can't take possession of the title, your agent can. This should be someone you can trust, such as a family member, a close friend, or someone you've hired (such as a licensed and bonded broker).
Notice that you don't legally own the vehicle when someone hands you the keys, when you shake hands, or even when you sign an agreement to buy the car. Those factors all suggest moving towards a legal transfer, but they do not, by themselves, mean you own the car. The seller must provide you or your agent the properly assigned title for it to belong to you.
So, what is a title, and how can one be properly assigned to you?
In the US, a certificate of title (title for short) is a legal form, establishing an individual or a company as the legal owner of the vehicle.
The title by itself does not permit the owner to drive the vehicle on public roads. Registration, which is a separate process and document from the title, allows the vehicle to be driven on public roads. This differs from many countries, whose ownership and registration documents are one and the same (v5c in the UK, the Rego in Australia, etc.). We'll dig into vehicle registration in a future Fundamentals post.
The States, not the federal government, are responsible for vehicle administration, including titles. So each of the 50 United States, plus Washington DC, issue their own. They all have reciprocal agreements with each other, so all 51 titles can be brought to any other state for sale, gift, or any other type of legal transfer. Every state's vehicle can be registered by every other state's DMV. It's pretty common for a car to have been titled to many states throughout its life.
So let's look at a few more examples of titles.
You'll notice a couple things right away. First, they look very different from state to state, but second, they contain mostly the same information, including:
Identifying information, usually the Vehicle Identification Number (or VIN), the make, and the year of manufacture,
The body type (light vehicle, motorcycle, SUV, etc.), which usually factors into taxes upon registration (more on that in a future Fundamentals post),
The owner's name and address,
The lienholder(s), if the owner owes money on the vehicle (more on liens below),
The brand section (more on title brands below), and
The assignment section (sometimes called the transfer section) where the named owner assigns (i.e., transfers) the vehicle to another party.
A vehicle title is branded when a vehicle owner or insurer writes the value off as a total loss, typically because the cost to repair the vehicle exceeds the value of the vehicle.
Transferring the vehicle to another party will not remove the brand - the authorities will brand every subsequent title issued for that vehicle until it has been destroyed.
Common brands include Totaled, Fire, Flood, and Salvaged (sometimes called Rebuilt or Reconstructed).
A vehicle with a Salvaged brand has been written off as a total loss, then rebuilt. Insurance companies will usually decline to write property damage (first party) insurance on Salvaged vehicles, as prior repairs may fail catastrophically in the event of an accident.
ASSIGNING A VEHICLE TITLE
Ok, now that we know what American vehicle titles look like, how does someone assign their title to you?
Just as every state (plus Washington, D.C.) has its own titles, each has its own process for assigning (or transferring) a vehicle to someone else. However, the requirements are similar across states.
In order to assign a title to another person, all states require the owner’s signature, an odometer disclosure, and a lien release. A handful of states require a notary to witness the owner’s signature.
Listed owner’s signature, in ink and dated
If the vehicle has multiple owners, both must sign (unless, in the rare case that owners are specified by "OR", as opposed to "AND," one may sign)
If one or more of the vehicle's owners is a company, a company representative must sign according to the manner prescribed by the state of title issuance (usually looks something like this: "XYZ Inc. by John Doe, President"
For vehicles 10 years old or newer, federal law requires all vehicle sellers (private as well as dealers) to disclose the mileage at the time of sale, certifying under penalty of law that the odometer reading is correct to the best of the seller's knowledge
If the current owner borrowed money to buy the vehicle, the lender's name and address will appear on the lienholder section of the title.
If the loan has been paid off, the owner will be issued a) a new title from the state with the lienholder section blank, or b) a signed letter from the lender on the lender's letterhead stating that the lien has been released (i.e., paid off)
If the title still bears the lender's name in the lienholder section and the owner does not have a signed lien release, the owner may not transfer the title.
Notarization (required in 8 states)
If the vehicle's title was issued by Arizona, Oklahoma, Kentucky, Louisiana, North Carolina, Montana, Ohio, or Pennsylvania, the seller's signature must be notarized (unless they are a licensed auto dealer)
If you squint hard enough at the rear of the Pennsylvania title above, you'll see the notary block to the left of the highlighted signature block
Notary publics, which are appointed by state governments to help deter fraud, witness the signing of important documents and verify the identity of the signers, their willingness to sign the documents, and their awareness of the contents of the document. They can usually be found at banks, car dealerships, law firms, title companies, or insurance agencies.
While several states have passed laws permitting remote online notarization of documents, none of the states that require notarization have yet updated regulations to allow vehicle titles to be notarized online
Instead, remote signers can notarize a Power of Attorney that authorizes another party to sign the title on their behalf (see Power of Attorney, below)
If you buy a vehicle from a dealer, you may find that your title has been reassigned multiple times. This is due to the nature of the car business, and it’s ok.
Most dealerships take vehicles on trade that they have no intention of selling themselves. Let's imagine an example. Maybe Toyota of Springfield that takes a Jeep as a trade-in. They may sell the Jeep to the Chrysler of Springfield, who has lots of Jeeps on offer. If Chrysler of Springfield can't sell the Jeep, they may put it up for auction, where it might be bought Chrysler of Greenville.
A new title is only issued after registration, and since dealers don't typically register vehicles in their own names, these dealer-to-dealer transactions are usually recorded in the title's reassignment section.
So if you buy this Jeep from Chrysler of Greenville, this title should list each assignment (from the original owner to Toyota of Springfield, to Chrysler of Springfield, to Chrysler of Greenville) along with a signature from each dealer's authorized representative, or someone authorized to sign on their behalf via a power of attorney.
In other words, the title should reflect a clear chain of ownership, with each owner properly assigning it to the next. Any break in the chain could prevent you from perfecting title to the vehicle (i.e., having a new title issued listing you as the owner).
POWER OF ATTORNEY
A power of attorney is a written authorization to act on another's behalf within a specified scope (e.g., a business matter, an estate settlement, a vehicle transfer).
A notary must witness the signature of the person giving authorization for the power of attorney document to be valid.
Power of attorney documents are quite common in vehicle transactions, especially when dealerships are involved. The dealer quite frequently needs to act on behalf of the person who traded in their car, in order to transfer it to the next owner.
Often a dealer will sign a title “John Doe by Darryl Carsalesman, POA". If any of the assignments on the title are made with via a POA, the signed, notarized POA must accompany the title. A missing POA could prevent you from perfecting title (i.e., having a new title issued listing you as the owner).
ERRORS ON TITLES
Because titles involve pieces of paper and ink, sometimes mistakes happen. The seller may spell your name wrong, or write the wrong address in the transferee section - there are a number of ways to bungle this.
All titles say something to the effect of "Cross outs, white outs, or other alterations may void this title."
If an error does occur in the assignment process, it's not the end of the world. Each state has its own process and forms for correcting title errors - it usually involves a written statement, signed by the person who committed the error, explaining what happened.
THE LAST STEP
A properly assigned title (with accompanying POA's, if applicable) is called a "negotiable title," which means it belongs to
The bearer (i.e., whoever holds the piece of paper), if the buyer's / transferee's section of the title is left blank, or
Whoever is named in the buyer's / transferee's section.
So it's important to be careful with an assigned title with a blank buyer's/transferee's section. If you lose it, someone else could transfer the vehicle into their own name without too much trouble.
Therefore, It's usually a good idea to ask the buyer to write your name in the buyer's section of the title (or write it in yourself).
If you are buying a car for export, for instance, and don't have an address in the United States, listing just your name on the title (no address) is usually sufficient evidence of ownership, when accompanied by a bill of sale (more on that in a future post).
If you do have an address in the United States, having the buyer list your address on the title as well will clarify ownership if the title falls into the hands of someone with your same name.
This is the magic moment we’ve been waiting for.
We have met our goal of ownership transfer are 1) in possession of the title, and 2) the title has been properly assigned. (And as a security measure, you are named as the buyer.) You are now the legal owner of the car.
In this post, we discussed how vehicle ownership passes from one person to another in the US. In short, once the properly assigned title passes into your possession, it's yours. The details, however, matter quite a bit.
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