Straw Purchase, straight dope

Okay, so I am at work today and this subject just came up:

Straw Purchases. Since I have been in the car business, I have heard the term “straw purchase” used in the following example:

A guy comes in to buy a car, but his credit is horrible. So he gets his brother or friend to come in and sign for him. According to the ‘finance manager’ here, this is a straw purchase, because the car is in one person’s name, but meant for the other.

Now everything I read about this relates it to gun purchases. I have found a couple of car sites that state this is a scam dealers usually run to sell a car.

Does anyone know if it is illegal for someone to have someone else to sign for a car for them? EXAMPLE: I have bad credit, so I get my sister to come in and buy a car, IN HER NAME ALONE. Is this a straw purchase since I am not driving the car?

This will probably be highly dependent on the state you’re in.

I’d suspect that the state DMV doesn’t much care who pays for the car, and the finance company doesn’t care who registers the car, just so long as the loan company is listed on the title. Insurance may be a problem.

The term “straw purchase” as used in gun sales doesn’t really apply to cars - you’re not having someone buy a car and give it because you can’t legally own a car.

From http://www.carbuyingtips.com/car1.htm

It is a risk for the person with good credit - if the actual buyer/owner flakes, the co-signer is on the hook. As a result, some states have adopted specific wording that must be on the sales contract warning the co-signer what they’re getting into.

Not illegal as far as I know but most likely a violation of the purchase and or financing agreement with the dealer. Its also a bad idea unless its under perfect circumstances. Example, my brother just won the lottery, but has crappy credit due to being unemployed for the last 9 months and going late on many payments. Nobodys going to care that he has $500,000 coming next month, they pull his report and say…yeah, whatever.

I have several friends who have also been badly burned by this when the person in question is lax about making payments…surprise, surprise, and took heavy hits to their credit.

Guns are a different story since you are transferring the weapon to someone who cannot legally purchase it.

The loan I pay on my car is completely in my brother’s name. The title of the car is completely in my name. It’s my car. He doesn’t need insurance on it, and no one ever seems to have a problem with the arrangement. So if we’ve commited a crime, I’d be suprised.
There’s been a couple times where he has applied for home loans or who knows what else. And the bank or loan company will see the car on his credit report and claim he has too much open credit for such and such rate or whatever.
When this comes up, I just show payment history for the car. All the checks have been from my bank. And I type up a sworn memo saying that the car is mine and I am solely responsible for all the payments and I agree to keep paying until the end of the loan or whatever.
All the companies have been fine with this. After the copies of checks and the memo, they look at it differently.

He’s reaping all the positive consequences from me paying off the car though. Lucky bastard.

(Bolding mine)
If she buys a car and she drives it, that sounds like a normal car purchase to me. Or am I missing something here?
Perhaps you meant to leave the word not out of that sentence?
Assuming that you meant you give her the money, she buys the car and YOU drive it. Then the only problem I can see is that if the car is in an accident, there is a risk of either the claim being denied or she could be sued. To insure the car you must have insurable interest in the car. For example I cannot buy car insurance on my neighbor’s car. If my neighbor hits a kid in a crosswalk, I will not suffer a financial loss. Since you are not on the title, the insurance company could argue that you have no insurable interest in the car. Now if you have been making payments, you probably could argue in court that in fact you do have an insurable interest, but it could be a court fight to get there. There is a way around this, and that is by putting both of your names on the title.
The second problem I see is if you are not on the title, and there is a severe accident, your sister might get named in the law suit since she is the legal owner of the car. If she is not named on the insurance policy, the insurance company does not owe her the right of defense. Naming your sister as additionally insured on the policy would take care of this.

You are missing the point that the sole name on the car title can be the OPs. And the sole name on the car loan can be the OP’s sister. The insurance only looks at the title. They dont care about the loan.
My brother’s name is not on my car’s title. In the dealership, mine is the only name under owner or buyer or whatever.
My brother’s name is alone on the loan. He was not my cosigner, but the sole party in that loan. So he’s got an outstanding loan for a vehicle which he doesn’t own.
So there’s no need for fancy courtroom antics. Just show the insurance company the title to the car, and pay your insurance. My insurance company had no issue. And his insurance company doesn’t notice anyway. All they would be looking at is vehicles registered to him anyway. And mine isn’t.

You are describing a different condition that the one I was writting about. Go back and read the OP

This would indicate that the sister signs (To me this means owns the car) and he drives it. This is not the situation you are describing.
In your case your name is on the title, and you are driving the car. Your brother has the loan. BTW how did your brother get a loan on a car where he has no ownership interest? Or did he get a personal unsecured loan?
Two different cases here.

I did this with my car, and so did my brother. In fact, I think it was the dealer who suggested it to me.

My dad owns a home and 2 cars outright, and was going to be co-signing with me. The dealer said “we’ll run his credit first to see what kind of loan he can get, then yours.” He came back from the financial office and was like “Your dad’s credit score is 805. We’re not even going to pull yours.”

So we both signed all the papers, but the title is in my name, the insurance is in my name, the plates are in my name. The loan is in his name, but I actually co-signed for HIM.

The car shows up on my credit report, and his too. It works out fine for me (and my brother, who did the same thing) because I got the best interest rate possible AND the credit rating. It only works out for my dad if my brother and I make our payments, and there’s no way we won’t.

On the other hand, I have a friend who signed for his girlfriend’s car loan, they broke up, and he’s still got to keep an eye on the loan lest she default on the payments - because it’s all in his name. Whoops!

We can not title a car in one person’s name and finance it in the other’s here. If MR. SMITH puts the car in his name for the finance contract/bank loan and MRS. JOHNSON is the one driving the car, the legal owner is MR. SMITH. Yes, since MR. SMITH is the legal owner, the insurance is in his name, etc. I think that would be another thread.

My questions is, and I am sorry for not making this clear before:

Does anyone know if it is illegal for someone (I am in the state of Florida) to purchase a car under one name and not being the sole driver? Does anyone have any cites, websites, etc.? Maybe it is not illegal per state laws, but would/could it be considered fraud? Maybe misleading/frauding the finance company?

My purpose for getting into this is a can of worms has been opened here at work. A customer came in the other day to buy a car. He mentioned it was for his brother, and they would not let him take delivery of the car, calling it a straw purchase.

I just spent a healthy amount of time Googling to no avail.
Doesn’t mean it’s not illegal, as a non-lawyer not being able to find a law means just about jack.
Is this guy trying to finance or buy outright?
Straw-men MIGHT violate some lender’s agreements, but I can’t imagine that buying a car for a third party is really legally any different than buying that third party real estate or a fancy stereo… why would the state care?

We are talking about a financing situation really. If it were to buy outright, we would be worried about money laundering, which is a big worry down here in South Florida. Nobody here wants the FBI busting in!

So, are you saying that in Florida if a person wanted to buy a car as a gift for his son, and to have the financing in the father’s name, but the title in the son’s name that would be illegal?

I do not know, that is what I am trying to find out. I can not find any laws that state that this is illegal. HOWEVER, the exception that they make is if it for someone that is a child, it is allowed, as the child does not the ability to pay. My argument to this is that what if someone else does not have the ability to pay? Say I am unemployed, is my sister allowed to sign and I drive the car? What about my friend signing for me?

Lance,

Two suggested courses of action.

  1. Consult the lender your dealer uses most often. Just phrase it as a friendly, curious inquiry.
    I’d bet money it’s a company policy, NOT a law. Some businesses make policies up, then cite imaginary laws to justify the policy, like making claims that “insurance won’t let us” when insurance doesn’t care.
  2. Consult the lending officer at your nearest full-service bank branch. He should know this.

Heck, call up the DA’s office or state department of commerce. “Would you put me in jail if I did this?”

I witnessed a situation where an auto broker from out of town, visited Florida and he was in the business of “take over payment” cars, where he talks people who post ads on craigslist their “take over payments” car, where they don’t want their vehicle repo’d, and want to try to get the car out of their name so their credit isn’t ruined for what ever reason. The broker would look up ads on craigslist and talk them into giving the car to him to sell, a 90-day contract, where it is a one page document that says he will sell it in 90 days making sure it has insurance, and within the 90 days he will make the payments. He in turn takes the car, straight to a “buyer”, I am assuming it is a straw buyer, who turns around and sells it to a 3rd party, a buyer who has good credit, i.e. a dealer … mainly. I tried to see if I could start a small, very small dealership quazi middle man type of business where I could do the same thing, but didn’t end up doing anything with it, only after the broker was possibly doing something wrong, either selling the cars to the wrong guy for a commission, or the person he was selling the cars to were doing something wrong with the cars. What ended up happening to a few of the cars is, some of them did not get transferred properly, were in limbo without any insurance or car payments made and the finance companies started looking to the registered owners for the cars or payments on those cars.

As a car dealer, are any of you familiar with dealing in “take over payment” cars, where people post on craigslist; and if so, do dealers go to craigslist to help build up their inventory on their lots, or is this even legal. I talked to police a couple of times about it, and they said, it is more of a civil consumer matter than of a criminal nature, because the registered owner gives the keys to the broker, taking a chance that anything could happen to the car. I did a lot of research too, and the company I started, was called auto consignment, because anytime a person were to give their vehicle or anything of value to a consignment “shop”, the owner assumes all losses incurred if something were to happen to the item of value. I need more insight into this; as I am very new this type of thing. I didn’t realize the car business was this complex, because of all the contracts between lenders and buyers etc; and what contractual obligations the buyers have to the lenders because I would think that they are breaching the lending contract, by buying into someone’s flimsy 90 day contract that could potentially become breached. Do you think it is the entire fault of the 90 day agreement broker, i.e. because is agreeing to sell or refinance. Then I read about a widespread problem of “straw buyers” I don’t know if has the same meaning, that buys brand new cars cheap, and for all I know they are stolen cars, wherein they turn around and re-register them in other states and get new titles, altering title information; and even going to the extent of switching out vin numbers. I thought there were vin numbers in more than one place on a car.

Suffice to say, I thought I was interested in getting into the “car business” on a very small scale, but now, as I delve into it, I do not want anything to do with it. There needs to be a universal database for VIN numbers or a new way to identify vehicles. Maybe the VIN number is an archaic way to identify cars now a days; maybe there should be a way to scan a car to see all of it’s history; where there is no way the information can be altered without rendering it unusable; or a system that sends out an alert if it is tampered with.

Carquestion,
I think you’d get better answers if you asked in a new thread.

Can you help me delete that then, I can’t for some reason, and I will ask it in a new thred

Yeah, you only have a few minutes to delete a post.
Don’t sweat it.
Mods will probably lock this thread as a zombie.