Don't Buy a Flood-Damaged Vehicle!

Vehicles partially submerged in floodwaters
Image courtesy of [ricardoazoury] / Getty Images.

Every year scores of vehicles are damaged by floods. Water can wreak havoc on a vehicle, particularly its electrical system. It can also damage the engine, the transmission and the cooling system. Moisture that collects in carpet, upholstery and interior liners can generate mold.

Many business owners occasionally purchase a used vehicle. Few would knowingly buy a vehicle that had been submerged in flood waters.

Yet, flood damage can be difficult to identify. Moreover, vehicle buyers may not look for flood damage if no recent floods have occurred in their area. Unfortunately, flood-damaged vehicles are often transported across state lines. They often turn up on used car lots far from where the flood occurred.

This article will describe how flood-damaged autos are typically disposed of. It will also explain why some of these vehicles reenter the marketplace and steps you can take to avoid purchasing them.

Flood Scenario

Suppose that your company owns a small pickup truck. One day a thunderstorm blows up. Heavy rain causes a flash flood in an underground parking garage where your truck is parked. Your truck is submerged for over a day. By the time you are able to retrieve it your truck is severely damaged. Fortunately, your truck is insured for physical damage under a commercial auto policy. You file a claim with your insurer under comprehensive coverage.

Your insurer declares the vehicle a total loss and sends you a check for its actual cash value.

Vehicle Brands

Once your insurer has paid your claim it obtains ownership of the vehicle. The insurer will likely sell the vehicle to a junk or parts dealer. First, however, it is typically required to notify the state department of motor vehicles (DMV) or other licensing agency that the vehicle has been declared a total loss.

The insurer may also be required to obtain a branded title from the DMV.

A brand is a designation that describes the vehicle's history. Brands differ from state to state. Some states do not use them. Examples of brands are salvage, junk, water-damaged, and lemon law-buyback. Some states use a specific brand for flood-damaged vehicles. Others simply designate a vehicle as salvage or junk.

A brand remains part of the vehicle's title for the remainder of its lifetime. For instance, suppose that your state's DMV has issued a salvage title for your flood-damaged truck. When the insurer sells the vehicle to a parts dealer, the salvage brand remains part of the truck's title.

What if your flood-damage truck is not covered by physical damage insurance? In this case, you (the owner) may be obligated to report the vehicle as salvage to your state's DMV. You may also be required to surrender the title. State law may dictate that you apply to the DMV for a salvage title if you want to retain the vehicle as salvage.

Unscrupulous Dealers

After buying flood-damaged autos, legitimate dealers typically strip the vehicles. They save the parts that are reusable and discard the rest. Unfortunately, some dealers are not honest.

Unscrupulous dealers may resell the vehicles to unsuspecting buyers. Dealers may attempt to hide evidence of flood damage by cleaning the vehicles and performing minor repairs. They may also "wash" the titles by moving the vehicles to states that don't use brands or that use brands other than those attached to the vehicles' titles. The vehicles are then retitled and sold.

VIN Check

Suppose you have found a used auto you want to purchase. How can you determine whether it is flood-damaged? The first step is to check its vehicle identification number (VIN) to verify the auto's history. Several organizations offer VIN verification services.

One is the National Motor Vehicle Title Information System. The NMVTIS is a national database operated by the federal government. The database contains information about the title history of individual vehicles.

The data are provided by insurers, junk yards, salvage yards and state motor vehicle departments. Consumers (including business owners) can obtain a report through a data provider listed on the NMVTIS website.

Other options for verifying a VIN include Carfax, Autocheck, and VINcheck. VINcheck is a free service provided by the Nation Insurance Crime Bureau. All of these services are available online.

Inspection

Suppose that a VIN check comes up clean. Should you buy the vehicle? The answer is not yet. You  should first have the vehicle inspected by a mechanic who can identify evidence of water exposure. Here are some signs that a vehicle has been damaged by a flood:

  • Wet, stained or moldy carpet or upholstery
  • Fog in lights or the instrument panel
  • Grit in seatbelt locks or in crevices around seatbelts
  • Musty odor, or an excess of perfume to hide musty odors
  • Rust in areas that don't normally get wet (like the brake pedal and trunk latch)
  • Water lines under the hood