You've seen the devastating tragic pictures of property loss from hurricanes and other storms, most recently from Hurricane Sandy. Houses submerged. People in rowboats. Cars underwater.

The resulting vehicular damage from the flooding will be massive. Because of that, the auction circuit will once again be "flooded" (pardon the pun) with flood cars, trucks & SUVs. Car insurance companies will be dealing with claims on thousands of lost vehicles. You don't want to buy a flood damaged vehicle.

You don't want to buy a flood damaged vehicle. But it isn't always easy to tell, and there are some unscrupulous resellers who will try and palm off a flood car on you if you aren't careful.

Here is how it works:

When vehicles are totaled, the insurance company pays the insured and issues a "branded" title indicating the type of loss (Salvage, Rebuilt Wreck, Flood Victim), and takes possession of the vehicle. The vehicle is then hauled off to an insurance auction. Most buyers represent legitimate businesses (body shops and car dealers), but there are also unscrupulous vehicle rebuilders who own "chop shops" among the group.

These vultures are vying to buy as many (formerly) premium vehicles (Lexus, BMW, Cadillac) as they can at the lowest possible price. They will rebuild them as cheaply as possible and sell them back into the auction circuit. The auction buyer is their prey.

When these vehicles are sold back into the auction circuit, they are generally moved across the country, far from the location of the scoundrels that sold them. Purchased by some dealer who wasn't good at spotting the tell-tale signs of a flood vehicle -- or is so intent on finding a deal, he doesn't look closely enough -- they are then taken home to his lot and sold. Neither the dealer, nor the retail buyer knows what they are buying because they did not run a title history report on the vehicle prior to purchase.

So, what is going to happen to a flood damaged car? The vehicle may perform admirably for a few months, and then it slowly evolves into a money pit. The strange part is that the breakdowns are due to what seems to be water contamination! How can this be? Joe Customer lives in the driest section of Arizona! Yet the various problems and issues afflicting the car clearly show that it was submerged in water.

There are several reasons cited for why some people avoid the dealerships for repairs and maintenance: Perceived higher pricing, non-personal service and attention to customers, less recourse in the event of a problem, and technicians paid on a flat-rate basis.
Joe gets suspicious and runs a title history report on the vehicle. He discovers that it was totaled in a flood in Memphis six months earlier. How could this have happened to Joe or the dealer without anyone knowing? A better question is: "How do you avoid getting into this position yourself?"

Answer: Conduct a pre-purchase inspection and title search on any and all pre-owned cars you may purchase, whether the car comes from a new-car dealer selling the car as used, a used-car lot, local mechanic shop that sells cars or a private seller.

What turns up in a good pre-purchase inspection? A trained eye can pick out such things as paint over spray indicating body damage repair, frame damage, water damage, and major repairs. The few dollars it costs for the inspection could save you a ton of money down the road. What do trained technicians look for when conducting a pre-purchase vehicle inspection?

Water damage: Water lines in the engine compartment, trunk, and doorjambs. They check electrical connections for excessive corrosion, which usually takes the form of a green, crusty substance in the electrical plugs and junction blocks. They look at the seat mounting bolts where the seat fastens to the floorboards to see if they rusty. If so, why? Was the vehicle underwater?

The techs check the carpet for proper fit. If it's loose or wrinkled, it's possible that the carpet was removed to repair water damage and then re-installed sloppily. They check the oil, power steering fluid, transmission fluid, and differential fluid for a milky color, which can be caused by water mixing with these fluids. A good tech will reach up under the dash and seats to check for mud, fine dirt and silt. The only way dirt of this nature can get into these areas is if the vehicle was submerged in dirty floodwater.

Odometer tampering: Knowledgeable techs will look at the odometer closely for smudging or slight misalignment. These conditions could be an indication of odometer tampering or rollback while the flood car was being refurbished for resale in an effort to get a higher price at auction.

Conflicts with the model's equipment list: If the vehicle is supposed to have a specific type of engine or set of equipment, and it does not, the technicians will want to know why. Missing turbo charger? Engine block heater? Disparities such as this are indications that the vehicle may have been rebuilt. Make sure you are educated on the model you are seeking to buy. Know what equipment should be in place and if it is not, find out why.

Check the VIN: Qualified technicians will check the VIN (Vehicle Identification Number) closely for any discrepancies between the title, ID tag at the base of the windshield, and the tag on the driver's door. Any differences could be an indication that the vehicle was given a new VIN.

Engine oil dipsticks: These are checked for heavy varnish or black deposits. The presence of these may indicate the engine has been habitually run low on oil and/or the oil has not been changed or the engine run in an overheated condition. In addition, emulsified (milky) oil could be an indication that the vehicle was under water.

Power steering fluid: The fluid is checked for color and the presence of metal flakes. Blackened fluid impregnated with metal flakes is an indication of wear in the system. A milky color indicates water is/was mixed with the fluid and the vehicle was possibly submerged.

Automatic transmission fluid: This should be red and clean. A brown color with a burned smell can be an indication of a worn transmission. A strawberry milkshake color indicates water is or was mixed with the fluid.

Engine coolant: This should be "Clean-n-Green" (or orange in some cases). The presence of dirt and a burnt smell may mean anything from neglect to serious engine damage.

How "Title Washing" Works

How does the thief remove the brand from the title that was issued by the insurance company?

When an insurance company labels a car "totaled" as a flood victim, the title is branded as a flood loss. (If the car is totaled due to a wreck, a salvage title is issued.) The original owner is paid for the loss and the car now becomes the property of the insurance company. It is taken to an insurance auction to be sold to the highest bidder.

Chop shops and unscrupulous rebuilders with the intent to restore the vehicle as cheap as possible and sell it at auction buy the flood vehicle at the auction and rebuild the car to running condition. Next, they run the vehicle over state lines and re-register the vehicle as they go. Sometimes they assign a new VIN (Vehicle Identification Number) to the vehicle. As the vehicle is re-registered over and over, eventually the insurance brand is removed or "washed" clean from the title, hence the term "Title Washing." Once a clean title is issued, the thieves either feed the vehicle back into the auction circuit or sell it outright at a big profit without disclosure.

It gets worse. When they sell it at auction, they will bring along co-bidders to bid against other dealers (both present and online) to drive up the price of the vehicle. The rebuilt clean-titled flood victim is sold at a premium wholesale price (much higher than the thief invested in cost factor and labor), takes it across the country to your local car dealer. You buy the car and in doing so, inherit a laundry list of problems that will come to fruition over time much like a time bomb ticking away ... tick tock tick tock ...

Does this really happen?

Yes. A batch of title washed vehicles made it into the Buffalo, N.Y., market back in 1993. The Mississippi River was the culprit again, swelling its banks and, like recently, many cars were lost. A large number of them ended up in the Northeast through the auction circuit where they were purchased by dealers and sold to unsuspecting customers. About three months later, these vehicles started dropping like dead flies on the roadways. The investigation uncovered the source of these vehicles -- the Mississippi River flood. They had been rebuilt, titles washed and sold to the highest bidder.

Bottom Line:

To protect yourself from buying a flood victim, rebuilt wreck, rebuilt stolen vehicle, or a salvage vehicle make sure you have a pre-purchase vehicle inspection done by a trusted repair shop and conduct a title history report through a reputable company such as CARFAX. Flood damage information is reported to CARFAX from all 50 state DMVs and, as a service to consumers everywhere, is available for free at www.carfax.com/flood. Following these guidelines should help steer you away from a potential flood victim or any other vehicle fraud.