Thousands of car dealers across the nation have been selling cars they don’t even own. Don’t be victimized by shady dealers who engage in what’s known as “car kiting” — selling cars they take in trade, without paying off the outstanding liens.

How do they do it? Dealers who are having trouble making ends meet, or are just crooked, take cars in trade from consumers who still more than the cars are worth — known as being “upside down” or “underwater.” The dealers promise to pay off the rest of the loan, and the amount the consumer owes is rolled over and added on top of their next loan.  Then the dealer fails to pay off the loan. Instead, he “kites” the car — selling it without first paying the lender and getting proper title to the car.

If you buy the car that was traded in, you may be out of luck. That’s because the former owner’s lender still has the title to the car, and expects to be paid. When the dealer fails to pay, the lender can repossess your car. They can seize it even if you are a very responsible borrower and make every payment in full and on time, to your lender. When your car is repossessed, that can leave you without a way to get to work, and cost you your job. Plus a repossession typically stays on your credit for 7 years. Many employers check credit reports before they hire, so a repo can also become a barrier to employment.

How can you protect yourself from car kiting?

1. Insist on seeing the title before you buy. If the dealer doesn’t have the title, it may be because they failed to pay off the outstanding balance.

2. Double-check with your state’s motor vehicle department to make sure the title is legitimate (it’s too easy for a shady dealer to counterfeit a title).

Want to learn more about car kiting scams?   Here’s one case that caught the attention of New Mexico’s Attorney General:

http://www.youtube.com/watch?v=L_je_rhuq7E