What Happens If One Sells a Car & the Owner Does Not Transfer the Title?

A buyer who intends to sell the car shortly after making the purchase may elect to leave the original seller on record as the owner of the vehicle to avoid paying the sales tax. This is called “title jumping.”

When this happens, the first buyer leaves the new owner’s section blank with the intention of having the next buyer transfer ownership. This practice is used by unlicensed car dealers to avoid having to be licensed as a dealer because of the number of cars they sell in a year. This practice is illegal and leaves the seller liable for the car until ownership is finally transferred.

A buyer may intend to transfer the title but lose it before presenting the necessary documentation to the DMV. In this situation, the buyer can ask the seller to apply for a duplicate title and then sign it off to release ownership again. If the seller can’t be located or is unwilling to order a duplicate, the buyer can apply for a “bonded title.”

To get a bonded title, the buyer must prove ownership by presenting a bill of sale and submit documentation required by the state to a surety bond company, which will issue a title bond. The owner can then take the proof of the bond to the DMV and receive a bonded title. After three years, the bonded title can be converted to a conventional certificate of title.

To transfer ownership, all lien holders must first be removed from the title. Lien holders, such as a bank that provides financing for the purchase of the vehicle, can only be released by paying the balance owed in full. Additional encumbrances, referred to as mechanic’s and storage liens, can be placed against a title for unpaid repairs or storage. All of these liens are recorded with the DMV in the state where the car is registered.

If the new owner tries to transfer a title with a lien placed against it, the DMV will deny it. Under these circumstances, the buyer can try to reverse the transaction with the seller or must pay off the lien to transfer the title.

Sellers and buyers can avoid problems involved with transferring vehicle titles by conducting the transaction at the DMV or a AAA office. A second option is to have an escrow service coordinate the transaction to ensure that each party takes the steps required to make the sale and transfer the ownership of the vehicle. The benefit of using an escrow service is that the interests of both parties are protected by a third party that pays the seller only after a clear title is confirmed with the DMV, while presenting the title to the buyer only after ownership has been transferred.