Transfer or Unwind: There is No Try
“Do or do not. There is no try.” This famous quote from the diminutive Star Wars Jedi Master may seem like an unusual way to begin a column on transferring titles…and it probably is. However, let's see if we can tie it in to a discussion of how, when and under what conditions a vehicle must be transferred.The facts are these: If a vehicle is sold by a dealer, the title must be transferred into the customer's name or the deal must be unwound, period. It is one or the other. Why?
First let's look at the more common scenarios where this could be an issue. After all, we all know the dealer must transfer the title on behalf of the customer (with the exception of export, out-of-state sales and vehicles with a gross weight in excess of 11,000lbs). So what would motivate a dealer to NOT transfer a title?
In the BHPH world, the obvious situation is a first or second payment default. Why, the reasoning goes, would a dealer transfer a car they are about to repo, or already have repo-ed? More on that in a moment.
In the retail world, the situation is more likely to revolve around a customer's failure to provide stips (paycheck stubs, proof of address, etc…) to the finance company after the contract is signed. In that case the finance company rejects the deal and the dealer never gets funded. The end result is essentially the same; why transfer when the deal is dead and the vehicle must be repo-ed?
The answer to, “Why transfer?” is this: A sale either has or has not occurred. If a sale has occurred, state law provides that a dealer must collect and remit motor vehicle sales tax as well as apply for registration and title on behalf of the customer. In the scenarios described above, a sale has clearly occurred. The only way for a dealer to avoid tax and transfer obligations is to unwind the deal completely; in other words, take the vehicle back and return the customer's money.
In BHPH, most dealers utilize deferred sales tax, meaning they only collect and remit tax on monies received. This takes much of the sting out of transferring a vehicle on a first or second payment default repo, since tax is only due on the down payment (and any other monies received). The dealer is still on the hook for the title, registration and other fees due at the county, however.
In retail, that transfer is a lot more painful because motor vehicle sales tax is likely due in full, since a non-BHPH dealer would not hold a deferred sales tax permit. In this case the dealer may actually be better off unwinding the deal, as the TT&L might exceed the down payment received. As discussed in the December 2014 Regulation Matters column, retail dealers might consider utilizing a conditional delivery agreement to avoid some of the headaches associated with being an unintended lienholder.
(By the way, you can access that column at under Resources >> Knowledge Base, with a Keyword Search “Conditional.” All my columns are Members-Only, so be sure you are logged in. Isn't the new website great??)
Obviously there are a lot more considerations, complications and other problems associated with defaults and repossessions. But when it comes to titles, the mantra is simple: you need to transfer the title or you need to unwind the deal.