Beware…that trade in can destroy your good credit
An article recently appeared in the Detroit Free Press about a couple who trade in their recreational vehicle with what they thought was a sound dealer. Indeed, Walt Michal’s RV has been around for a long time, dealing in RVs. When the happy couple trade in their old RV that had a lien on it from the prior lender, for a new RV, they counted on the Walt Michals to pay off the loan balance of about $180,000. That did not happen. Walt Michals went out of business without paying off the lien on the old RV and now the couple is on the hook for the old loan and the new loan. This has been financially devastating to the couple and has completely trashed their credit score because they have not been able to keep up with the old payment as well as the new one. Worse yet, they probably have no rights under the Fair Credit Reporting Act that could be used to clean up their credit score.
This is not an anomalous issue. Some of my colleagues have sued car dealers over this same issue. So how do you protect yourself?
When trading in a vehicle for a new one, tell the dealer that you will turn the title to the vehicle over to the bank and not the dealer. When the dealer pays the bank off, the dealer can then take title to vehicle. If the bank is out of state, then use a local bank to act as an escrow agent. The dealer may balk at this and accuse you of not trusting them. That’s o.k. If the dealer is solvent and truly intends to pay off the loan on the trade in vehicle, it will understand and should agree to this escrow arrangement. You can leave the vehicle with the dealer and if anything happens to it, your insurance company should stand behind you. For example, if the dealer moves, transfers or hides the vehicle while going out of business, that vehicle is now stolen as you still have the title in your name.
MORAL OF THE STORY – In these horrible economic times, you can no longer take it for granted that the dealer that had built up all sorts of good will in your community is still a viable entity. Do NOT turn over the titles to vehicles to a dealer without protecting yourself