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Beware Of Repossession

September 2015

The risks when purchasing second-hand motor vehicles

We often have enquiries regarding the purchase of second-hand motor vehicles and the possibility (and sometimes the reality) that the motor vehicle has been reported by a previous owner as having been stolen sometime previously.

The situation referred to above highlights some of the potential difficulties with purchasing second-hand vehicles privately rather than from a Registered Motor Vehicle Trader. Because many motor vehicles are not always kept at the owner’s home but at a storage facility or camping ground, there can sometimes be a delay before the owner notices that the vehicle has been stolen. Therefore, there is an increased risk to a subsequent purchaser of a motor vehicle who may buy the vehicle before it has been reported stolen.

Ways of Purchasing Second-hand Motor Vehicles

There are numerous ways to purchase a second-hand motor vehicle. In addition to purchasing from Registered Motor Vehicle Traders or private sellers, motor vehicles can also be purchased at car fairs or car markets, auctions and online. All methods have their advantages and disadvantages. For example, purchasing from a Registered Motor Vehicle Trader may be more expensive in terms of the purchase price but on the other hand the purchaser is much better protected in the event that it transpires that the vehicle has been stolen, there is money owing on the vehicle or there are subsequent problems with the vehicle. On the other hand, if purchasing from a private seller, the purchase price may be less but equally there is much less protection available to the purchaser under the law in event that the vehicle turns out to be stolen or there are other problems with it. Car markets also have the advantage of providing the purchaser with a wide variety of vehicles on offer at the same time (as is the case when visiting a dealer’s yard) but, on the other hand, purchasers do not have the same protections as when purchasing from a Registered Motor Vehicle Trader as it is essentially a private sale if the vehicle is being purchased directly from a private individual.

Obtaining Clear Title

There is a long-established general principle that a person who buys goods acquires no better title (ownership) to those goods than the seller had (although there are exceptions to this principle, notably in relation to security interests covered by the Personal and Property Securities Act 1999 which are discussed below). Where a vehicle is stolen, the thief does not acquire ownership of the vehicle with the true owner remaining the person from whom it was stolen. Therefore, not only does a person who purchases a vehicle from the thief not acquire ownership of the vehicle, neither will any subsequent purchasers of the vehicle. This applies irrespective of whether or not purchaser knew that the vehicle was stolen. Therefore, subsequent purchasers of a vehicle that has been stolen run the risk that it will be uplifted by the police and/or the true owner. In that event, the purchaser may well have their remedies against the seller but that is of course dependent on the seller being able to be located and having the funds necessary to refund the purchase price. There are often considerable difficulties in this regard.

A second issue that can often arise is where a previous owner has granted a security interest in respect of a vehicle. Such a situation might arise if the purchase of the vehicle had been financed. In that event, the finance company/bank will normally register their security interest on the Personal and Property Securities Register (“PPSR”). If they do so, they retain their security interest until such time as it is discharged. In particular, a registered security interest is not discharged automatically on the sale of the vehicle. Unless a registered security interest is discharged by the bank/finance company, then subsequent purchasers buy the vehicle subject to that security interest and may be at risk of having the vehicle repossessed by the bank/finance company holding the security interest. Again, the purchaser from whom the vehicle repossessed may well have their remedies against the seller but in practical terms, this is often of limited use unless the seller can be located and has the resources to compensate the buyer from whom the vehicle was repossessed.

How to Obtain Clear Title

As far as security interests are concerned, there are several precautions purchasers can take when purchasing a motor vehicle:

  • Purchase from a Registered Motor Vehicle Trader. If you purchase a motor vehicle from a Registered Motor Vehicle Trader, the vehicle will not be subject to any security interests unless the security interest field on the Consumer Information Notice (which the trader is required to display on the vehicle) is ticked yes and includes the statement “there is a security interest registered over this motor vehicle”. If the vehicle is purchased with this statement, then the purchaser takes it knowing that there is a security interest (and should ensure that the security interest is discharged prior to making payment or pay the purchase price to the security holder, not the seller).
  • Check the PPSR. If a finance company has lent money to someone to purchase a vehicle, the security interest can be registered on the PPSR. However, unless the security interest is registered on the PPSR, a subsequent purchaser who does not have knowledge of the security interest will not be bound by it. This is one of the exceptions to the general principle referred to above. On the other hand, if the security interest is registered on the PPSR, then it will be binding on subsequent purchasers who should ensure that the security interest is discharged prior to completing purchase. Therefore, searching the PPSR will disclose any security interest to which the vehicle may be subject. A search can be undertaken online (www.ppsr.govt.nz) for a nominal fee.
  • Obtain a MotorWeb or similar Vehicle Information Report which will contain information about the history of the vehicle. However, such reports do have their limitations and in particular will not provide any protection in the event that the event that the vehicle has not yet been reported stolen at the time the report is generated.
  • Check to see if the vehicle has been reported stolen and otherwise check the vehicle’s details with the New Zealand Transport Agency (NZTA) or the police. These checks can be undertaken online for free.
  • Use common sense. If a deal looks too good to be true, it probably is.

Recommendation

Our recommendation is that the safest way to purchase a second-hand motor vehicle is from a Registered Motor Vehicle Trader. It may cost a little more than purchasing the motor vehicle privately or at a car fair, but the vehicle will be subject only to those security interests that are specifically noted on the Consumer Information Notice. The motor vehicle is also much less likely to have been reported stolen. You may also have recourse to the Motor Vehicle Disputes Tribunal in the event of any problems. The additional costs that might be incurred in purchasing a second-hand motor vehicle from a Registered Motor Vehicle Trader with the consequent benefits referred to above are likely to be considerably less than the cost of not doing so if you later find out that the motor vehicles you purchased was stolen or had money owing on it.