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Originally published Saturday, January 12, 2013 at 9:00 PM

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‘Title-washing’ flooded cars a lucrative, if shady, business

Flooded cars from Hurricane Sandy are auctioned off to be dismantled into salvageable parts and melted down for their rubber and steel. And yet, while all have titles branding them flood cars, many are headed to out-of-state resale markets where buyers will have no inkling of their past.

The New York Times

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BORDENTOWN, N.J. — At the far end of an enormous hangar, used cars rolled up one by one to the auction block. They had been buffed to a shine, but some carried telltale signs of damage. Puckered leather seats, a hint of mildew, headlights beaded with condensation. Just over two months ago, they had filled with seawater during Hurricane Sandy.

One buyer at the Manheim car auction last Wednesday, Hakim Shittu, was looking for totaled vehicles to export to Nigeria, where they would be fixed up and resold; but these, he said, were too far gone. Saltwater destroys cars, he explained, and even when rebuilt they can be unsafe. “I never buy the flooded ones,” he said.

But all around him, other buyers showed no such compunction. The flood-damaged vehicles sold briskly, for $2,600, $5,300, $3,000. Some were to be dismantled into salvageable parts, such as wheels and fenders; some were to be melted down for their rubber and steel. And yet, while all have titles branding them flood cars, not all were destined for the scrap heap.

Many were headed to out-of-state resale markets where, because of inconsistencies in state laws, buyers will have no inkling that the vehicles were so damaged by floodwaters that insurance companies deemed them a total loss.

“People masquerade those things as perfectly good vehicles without any hint that they had been flooded or exposed to water,” said Frank Scafidi of the National Insurance Crime Bureau, an industry-financed nonprofit organization that investigates insurance fraud and vehicle theft. “There is a market for these vehicles, even though we might never want to see them on the road again.”

Though this practice provoked outrage after Hurricane Katrina and other major storms, dealers and industry experts said the brisk trade in flood-damaged cars since Hurricane Sandy had highlighted how legislative efforts at the state and federal levels have failed to stem the resale market.

The Insurance Crime Bureau said more than 230,000 cars were damaged by the hurricane, predominantly by the ocean water that surged into seaside communities, filling engines and interiors with sand and corrosive saline.

Once the vehicles are declared a total loss, specialized firms swoop in on behalf of insurance companies to tow away, spruce up and resell the cars. One of those companies, Insurance Auto Auctions, which estimates it is handling about 40 percent of the region’s storm-damaged cars heading to the salvage market, employs people to study weather forecasts and predict where the next disaster will be.

For the hurricane, the company sent 400 tow trucks to the area and leased huge holding facilities before the storm hit. One of those was an airport in Calverton, on Long Island, at a rate of $2.7 million for the year, according to Sean Walter, the town supervisor of nearby Riverhead. Since the storm, about 18,000 vehicles have packed the tarmac end to end, he said. “When you sit there and look at these cars with their children’s seats in them and the briefcases and the uneaten lunches — it’s just surreal,” Walter said.

Previously storm-damaged cars can arrive at auction branded improperly, or have their titles fudged after they leave. In most states, cars destroyed by flooding are required to have their titles marked, or branded, to indicate that fact. But clearing that scarlet letter can be as easy as re-registering for a title in another state that does not require the flood brand carry-over, a process known as “title washing.” Unscrupulous dealers pile their purchases on flatbeds and head straight for those states, such as Colorado and Vermont.

The prospect of title-washed cars from Hurricane Sandy entering the market raised alerts thousands of miles from New York. Officials warned consumers in Georgia, North Carolina and Illinois, where the secretary of state’s office is scrutinizing all new title applications for cars coming in from states affected by the storm.

A foreign market for these cars is also booming, unfettered by U.S. regulations.

Federal legislation that would require total-loss status to be affixed permanently to a car’s title was introduced in Congress before and after Hurricane Katrina, but was never passed. In 2009, the Justice Department began the National Motor Vehicle Title Information System, a database fed by insurers and states. But it is limited by sporadic reporting and incomplete data.

These shortcomings have provoked certain groups to warn about a deluge of unsafe cars hitting the market in the aftermath of Hurricane Sandy, including the National Automobile Dealers Association, which represents car dealers; and companies that sell reports on vehicle histories, such as Carfax. Both of these groups say insurance companies sometimes contribute to the problem by underplaying the damage to a car at auction.

In 2005, State Farm insurance reached an agreement with the attorneys general of 49 states and the District of Columbia for failing to properly title cars, reimbursing more than 30,000 affected consumers. Rachael Risinger, a spokeswoman for State Farm, said the company was complying with the laws in each state affected by Hurricane Sandy.

The explosion of car sales over the Internet, where vehicles can be sold person to person and bypass official channels, has made the problem harder to resolve.

Larry Scheiber, 58, never bothered to buy replacement insurance for the 1996 Nissan Altima he had used to get around his Belle Harbor neighborhood in Queens. After it was soaked, he sold it for $250 to a junk-car buyer who had left a flier under the windshield wiper. Such uninsured cars with soggy histories are even more susceptible to ending up back on the road; they are often rebuilt, reinspected and retitled, without their true affliction ever being reported.

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