Feds Revive Effort to Stop Sale of Katrina Cars

Cars Damaged by Flooding in Hurricane Katrina i i

hide captionIn the months after Hurricane Katrina, cars with water marks above the hood could be found all over New Orleans. Some of the cars were cleaned up by scam artists and sold to unsuspecting buyers.

Jeff Brady, NPR
Cars Damaged by Flooding in Hurricane Katrina

In the months after Hurricane Katrina, cars with water marks above the hood could be found all over New Orleans. Some of the cars were cleaned up by scam artists and sold to unsuspecting buyers.

Jeff Brady, NPR

Find Out More

Read more about cars flooded by Hurricane Katrina and about the National Motor Vehicle Title Information System:

Holes in Monitoring System Let Lemons Get Resold

Wrecked, Flooded Car Data Hard to Obtain

Car Damaged by Flood Sits on New Orleans Street i i

hide captionCars like this one were damaged by flooding from Hurricane Katrina. Some were cleaned up and resold to unsuspecting buyers in places as far away as Michigan.

Jeff Brady, NPR
Car Damaged by Flood Sits on New Orleans Street

Cars like this one were damaged by flooding from Hurricane Katrina. Some were cleaned up and resold to unsuspecting buyers in places as far away as Michigan.

Jeff Brady, NPR
Flooded Car Bought by Suburban Chicago Couple i i

hide captionMarc and Megan Johnson's 2005 Pontiac was flooded at a rental car lot in Louisiana, but they found that out too late. Someone cleaned it up and sent it to a car auction in Michigan. Now they're stuck with a car that looks fine but sometimes stalls in the middle of the road.

Jeff Brady, NPR
Flooded Car Bought by Suburban Chicago Couple

Marc and Megan Johnson's 2005 Pontiac was flooded at a rental car lot in Louisiana, but they found that out too late. Someone cleaned it up and sent it to a car auction in Michigan. Now they're stuck with a car that looks fine but sometimes stalls in the middle of the road.

Jeff Brady, NPR

Marc and Megan Johnson never thought they'd become victims of Hurricane Katrina. They live in a Chicago suburb, after all — nearly 1,000 miles from the Gulf Coast. Then they bought a 2005 Pontiac Grand Am last year.

Marc Johnson needed a reliable car to commute to his job as a guitar teacher. The Pontiac seemed like a good deal for $13,000 — it was only a year old and had been driven fewer than 30,000 miles.

Within a few weeks, the car began stalling — sometimes in the middle of the road. The Johnsons took it to a mechanic, who noticed a faint musty smell. He checked out the car further and determined it had been in a flood.

After a little more research, the Johnsons discovered the car had been a rental in New Orleans when Katrina bombarded the city. They were stuck.

"By that time the paperwork is already signed. The dealership is telling you to your face that you can't return it under any circumstances," Marc Johnson said. The couple sued the dealer, but the case hasn't been decided yet.

A system authorized 15 years ago might have prevented the Johnsons from getting ripped off — but it isn't operating yet. In 1992, Congress passed a law establishing a national title database that would alert all states about a damaged car as soon at it was identified as damaged in one state. Now, the National Motor Vehicle Title Information System may finally be cranking up.

'Washing' a Title

A flooded car — especially one submerged in saltwater — will almost never run well again. One consumer advocate says the cars just rot from the inside out.

The Johnsons were never warned that the car had been in a flood, which usually would be noted on the title.

"What is really, essentially, wrong with the system is that there's no national registration of titles. Each state has its own title registration system," said the Johnsons' attorney, William Huttel.

A scam artist can register a flooded car in several states until the flood "brand" on the title is removed. Then it can be passed off to unsuspecting buyers like the Johnsons.

The title information system would make it more difficult to "wash" titles that way, but the 1992 law that directed the federal government to create the NMVTIS was never fully implemented.

Benefits of '$11 Billion'

Essentially, NMVTIS would have established the national titling system by linking all the state motor vehicle departments. As soon as one state learned a car had been in a flood — or wrecked or stolen, for that matter — every state would know.

The Justice Department conducted a cost-benefit analysis of NMVTIS in 1999.

"The maximum investment would be $22 million and the benefits would be $11 billion," said Deepak Gupta, a lawyer for Ralph Nader's group, Public Citizen.

Despite that, NMVTIS was never completed. Consumer advocates suspect insurance companies worked behind the scenes to cripple it, though they can't prove that.

Insurers do have an interest in the resale market for flooded and totaled cars. They take ownership of the vehicles after paying a claim. If they can't resell the cars, that's a loss that, collectively, could cost a large company millions of dollars a year.

Making It Happen

The Justice Department now appears ready to complete the system. The FBI is drawing up rules so that insurance companies can submit their claims data to the system, and the Justice Department is making grants available to states so they can join NMVTIS.

Law enforcement around the country is behind the program.

"They see the benefits of it and they see the federal government is very, very serious about making it happen this time," said Ryan Toole, acting unit chief of the FBI's Major Theft Unit.

Consumer advocates say they're encouraged by the recent progress but a bit skeptical, given the slow pace of developing NMVTIS so far.

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