One of the most frequent topics of discussion on the Hotline for a while has been titling issues. The typical situation starts by when the dealership takes a used vehicle in on trade, reconditions it, and then quickly puts it on the lot for sale. The vehicle is sold, the sale is reported, and a temporary license plate (TLP) is issued for the vehicle. Some time passes, and, for one reason or another, the dealer is having trouble obtaining the physical title to the vehicle so that it can complete the registration, which is putting the dealer in a bind since the TLP expires 90 days after the date of sale. At that point, many dealers try to obtain a Temporary Operating Permit (TOP) from the DMV as a stopgap until the titling can be sorted out. Well, the DMV has caught onto this practice, and just a couple of weeks ago, released a memorandum restricting the issuance of TOPs. This article will review a discussion we previously had regarding selling a used vehicle without physical title and the new DMV memorandum and will discuss the logistics of when the dealer must have a physical title.
Selling a Vehicle Without an Ownership Interest vs. Selling a Vehicle Without Possession of The Title
Remember, there is a clear distinction between selling a used vehicle without the right to receive the title and selling a vehicle without having the physical title in hand. A dealership must not sell, or attempt to sell, a vehicle to a customer without first having a legal ownership interest in the vehicle. In other words, the dealership must first tender (i.e., mail a check or submit an electronic payment) the full lien payoff amount to the current lienholder, and must do so within 21 calendar days of acquiring the vehicle. [Vehicle Code section 11709.4(a)(1)]. Remember that the law specifies calendar days and not business days. Only after the full payoff amount is tendered does the dealer have a legal ownership interest in the vehicle, allowing the dealer to offer it for sale. [Vehicle Code section 11709.4(a)(4)].
Assuming the dealership has paid off the entire lien balance on the vehicle, the question becomes: “Must the dealer actually have the used vehicle’s physical title in hand before selling the vehicle?” The short answer is “no.” Selling a used vehicle without having possession of the title may be risky in certain respects, but California does not require that a dealership have the physical title in hand prior to selling a used vehicle. In fact, there are a variety of laws/DMV regulations about posting bond, duplicate title, and odometer disclosure requirements that contemplate dealerships not having the physical title of a vehicle in hand. We discussed these more in-depth in a previous article here.
Acquiring the Physical Title and How the VIN Memorandum 2022-03 Affects This
We know that a physical title is needed in order to obtain metal plates for a vehicle. As noted above, the temporary registration provided by the Used Vehicle Report of Sale (ROS) and/or Temporary License Plates (TLPs) expires 90 days after the date of sale [Vehicle Code section 4456(c)(2)]. Since it takes the DMV time to issue the metal plates, and even more time for the plates to be mailed out to the customer, logistically, the dealer will want to have the title in hand well before that 90-day post-sale mark.
In the past, dealers were sometimes able to obtain a TOP from the DMV to allow for the continued operation of the vehicle after that 90-day period. However, the DMV has officially taken away this lifeline for dealers. The DMV issued VIN 2022-03 on January 13, 2022, addressing its new policy on TOP issuance. In the VIN memorandum, the DMV states that TOPs no longer will be issued to extend that 90-day period for the ROS and/or TLP.
Now, and especially in light of this new memorandum, the dealer should be proactive when it comes to acquiring the physical title for vehicles. If the title has not come in and the 90-day mark is approaching, the dealer may want to offer the customer a loaner vehicle or to unwind the deal. It is never fun to receive a call from an angry customer informing you that he or she was pulled over because the temporary registration expired.
Suffice it to say, likely the best answer to “when must the dealer acquire the physical title?” is “as soon as possible.” Remember, title processing delays can damage favorable customer relations that dealers strive to maintain. Delays in the issuance of titles may also violate dealer agreements with lenders, which may result in forced repurchases of contracts.
If you have any questions regarding this, or any other situation that may arise in your sales or service departments, hotline clients are invited to contact us at (800) 785-2880 (then press “4” for hotline) or firstname.lastname@example.org.