Due diligence vital for dealerships selling used vehicles

By Staff

Car dealerships are responsible to ensure that every car they sell has a clear title and no outstanding loans against it, Toronto licensing and compliance lawyer Anar Dewshi tells

Used car dealerships in Thunder Bay and Sault Ste. Marie recently failed to do this, according to the CBC. It was only after buying the cars — when they were subsequently repossessed — that the purchasers discovered there were liens registered against them.

The Thunder Bay dealership’s licence was subsequently suspended pending a hearing before the Licence Appeal Tribunal. That means the dealer is unable to sell cars and is left in the position where it can’t conduct regular business and generate income, says Dewshi, principal of Dewshi Law Practice.

“It’s a huge risk,” she says. “There are things the dealers can do to ensure they don’t get caught in that predicament.

“They should be validating that the person selling the vehicle is the actual owner, and checking to ensure there are no other concerns.”

To ensure they’re acting within the regulations, dealers should follow a series of best practices, advises Dewshi.

The primary approach is to get a used vehicle package from Service Ontario or CarProof. It provides a history of the vehicle showing whether it’s been rebuilt or is a salvage car and if there are any liens against it.

The information gleaned from a lien check provides the dealership with some history of the vehicle, and is a critical step to protect themselves.

“The CarProof report is something that’s recommended on the consumer side, so it’s incumbent on dealers to make it available,” Dewshi says. “Many provide it automatically, whether the customer requests it or not.

“It’s very important because if anything goes awry, the dealer assumes the risk.”

Another obligation the dealer has when purchasing or consigning a used vehicle is that they are getting it from the rightful owner, Dewshi advises.

“You don’t want to run the risk that someone other than the owner is selling the car. It is common sense, but it is something you should always check,” she adds.

The dealer also needs to ask the car owner directly if there are any liens against it and confirm it in writing. That provides extra protection for the operator if a problem occurs down the road.

“The onus then shifts to the person they purchased from,” she says. “At the end of the day, the lien check is the most important thing.

“It’s something that could be so easily found that, to me, there’s no reason why they shouldn’t be aware. These are basic things that they should be doing every time with every car.”

The issue of cars being sold with liens against them is something that typically has been a concern in private sales of vehicles. So it’s a bit of a surprise that it occurred at a dealership, Dewshi says, noting that liens occur when loans are taken against the vehicle but can also result when a mechanic does work on the car but has not received payment.

“It’s interesting that it would actually happen with a dealership,” said Dewshi.

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