Everything You Need to Know About Car Titles

Although we live in a digital age, there are times when a single piece of paper carries far more weight than a computer chip or electronic device.

Vehicle ownership is one of those instances.

In fact, when it comes to your car, its title is worth a lot more than all those gadgets and gizmos that illuminate your dashboard and drive up its sale price.

Here's a brief (yet comprehensive) guide to everything you need to know about vehicle titles.

What is a Car Title?

A car title — officially known as a certificate of title — is a legal document that establishes a person or business as the owner of a vehicle. Titles are issued by the Department of Motor Vehicles (DMV) in the state where you live, and without one, you can't legally prove you own your vehicle.

Types of Car Titles

While car titles are essential for proving vehicle ownership, they also contain important information about an automobile's condition. That's why you need to familiarize yourself with the different types of titles and understand what each means, particularly if you're considering buying, selling, or refinancing a vehicle.

Although the official names for title classifications may vary slightly from state to state, you'll typically come across these:

Clean Title

A clean title means the car hasn't been declared a total loss by an insurance company or found to have major issues caused by a fire or flood. It doesn't, however, ensure the vehicle is free of all problems. It only means it hasn't sustained enough damage for the title to be "branded."

Clear Title

A clear title indicates no creditors or other third parties have a financial lien on the vehicle that would allow them to claim ownership. Quite simply, the car is "clear" to be sold.

Branded Titles

Title brands show whether a vehicle has been significantly damaged or has another issue that might make it unsafe to drive or difficult to sell. Branded automobiles receive an official designation from the state DMV that should appear on the title certificate. Types of branded titles include:

• Salvage Title: Any automobile involved in an accident that causes damage amounting to 75% or more of its current value will be deemed a total loss by an insurance company and branded with a salvage title.
• Reconstituted/Reconstructed Title: A car that is extensively repaired after being classified as a salvage vehicle may be issued a reconstituted or reconstructed title. This means the automobile was inspected by the state after repairs were made and is considered "fixed."
• Bonded Title: Bonded titles can be assigned to vehicles that have missing ownership documents, assuming a surety bond equal to the car's value is purchased as security. The bond, which is typically valid for three to five years, ensures you'll be financially protected if another person tries to claim ownership of the vehicle.
• Lemon Title: A lemon title is typically given to a vehicle that has experienced system or component malfunctions several times while under warranty. Laws may differ from state to state, but a car with an issue that makes it inoperable or unsafe to drive — even after multiple attempts by the manufacturer to correct the problem — can be branded as a lemon.
• Junk Title: Vehicles branded with a junk title are unable to be driven safely (or at all) due to severe damage to major components. Junk cars or trucks are typically sold to salvage yards for scrap metal or used parts.
• Odometer Rollback Title: An odometer rollback title means someone illegally tampered with or tried to roll back the odometer of the vehicle to lower its mileage and, in turn, increase its selling price.
• Flood Title: A vehicle with a flood title has been damaged from sitting in water deep enough to fill its engine compartment.

Bottom line: Whether you're buying, selling, or refinancing a vehicle, a title that's clean and clear is preferred. These vehicles retain their value more effectively and are generally considered safer and more reliable than cars with branded titles. And they're easier to sell if and when you decide to do so.

What Does a Car Title Look Like?

Much like title classifications, the title document itself may look different from state to state. However, a car title will always include the 17-digit vehicle identification number (VIN), as well as the year, make, and/or model or body type of the vehicle. (The VIN is usually located on the dashboard when looking into the car from outside or on the driver's side doorjamb.)

Generally, the title also includes:

• Odometer reading
• Date on which the odometer reading was taken
• Owner of the vehicle (whether an individual or lienholder, aka lender)
• Owner's address
• Issue date of the title

Again, pay special attention to the brand section on the title to ensure it hasn't been deemed a salvage vehicle or branded with another special classification.

When Do I Receive My Car Title?

Car titles are issued by the DMV in the state where your automobile is registered (more about that further down). You'll receive one whether you buy the vehicle, new or used, from a dealer or a private party.

When purchasing a vehicle from a dealer, they usually help you secure the title (for a fee, of course), as well as the registration and license plate. On the other hand, if you buy an automobile from a private owner, you'll have to handle the process yourself by going to your local DMV office or visiting the agency's website to fill out paperwork and pay fees.

Keep in mind that if you finance the vehicle, the lender will place a lien on it and hold the title as collateral until you repay the loan in full. This serves as an insurance policy for the lender, providing them the legal right to repossess your car if you default on your loan.

In some cases, the lender will send you the title before the loan is repaid, but the name of the lender will be printed on the title rather than yours. You'll receive a new title — with your name on it to prove ownership — when you pay off the loan.

How to Get a Replacement Car Title

So, you need to replace a car title that was lost, stolen, or destroyed. Now what? The simple answer is it depends.

If your name appears on the title, most states will allow you to apply for and purchase a duplicate title either online, in person at a local DMV office, or by mail. You'll have to provide some personal information and a form of identification, as well as the VIN. Some agencies also require proof of ownership like previous loan documents.

Replacing a title that wasn't in your name requires a bit more legwork. For example, if you purchased a vehicle from a private seller and the title was lost before it was transferred to your name, you could ask the previous owner to submit a replacement request. Then, he or she could sign the duplicate title over to you when it arrives.

When that's not possible, you may be able to obtain a title with a court order. You'll have to go to the courthouse in the county or jurisdiction where you live and file a court case similar to a small claims lawsuit.

After performing background checks and other due diligence to verify the vehicle isn't stolen and doesn't have a lien against it, a judge will award you ownership via a court order. This ruling, in effect, instructs the DMV to issue a title in your name.

How to Transfer a Car Title to Someone Else

As with most legal issues related to owning a vehicle, where you live will determine what's involved in transferring your car's title to someone else. That said, here are a few general guidelines to bear in mind if you're planning to transfer a title.

When You Own the Vehicle Outright

When transferring ownership of a vehicle that you own outright, you'll need to sign the actual title document to release ownership of the vehicle. The buyer (or person you're giving the car to, if that's the case) must then take the signed title to the DMV, fill out the required paperwork, and pay any necessary fees. Afterward, the state will issue a new registration and title to the buyer with his or her name on it.

When the Vehicle Has a Lien

Transferring the title of an automobile with a lien on it is more complicated. After all, your lender technically owns the vehicle and has a legal claim to the car or truck — as well as any money you might collect from its sale — until your loan is paid in full.

When attempting to transfer the title of a vehicle with a lien, it matters if you're:

• Selling to a private party: If you're selling the vehicle and can afford to pay off the loan balance in advance, your lender may be able to send a lien release document to the state DMV so that the car title can be updated and transferred to you. Once you receive the revised title, you can then transfer it to the buyer.
• Selling to a dealership: If you plan to sell or trade-in your vehicle at an auto dealership, the dealership might pay off your loan and handle the title transfer as part of your deal. However, if you owe more on your loan than the dealer agrees to give you for your automobile or allow for your trade-in, you're still obligated to pay the loan balance to your lender.

Suffice to say, there are quite a few things to consider when transferring a vehicle title. Do yourself a favor and visit your state's DMV website to learn more about the title transfer process. You can also search the American Automobile Association for state-specific ownership transfer information.

Do I Need to Transfer My Car Title When I Refinance My Car Loan?

Yes, when you refinance your vehicle, you will need to transfer the title so a new title can be issued. The name of the new lienholder (your lender) will appear on the new title in place of the former lender.

Fortunately, most finance companies will handle the transfer process for you. All you'll need to do is sign a limited Power of Attorney (POA) document, which allows the lender to do the title work on your behalf. When the title is updated, it will be sent to either you or the lienholder, depending on the state.

Car Title vs. Car Registration

While a car title proves who legally owns your vehicle, your car registration verifies you've paid the taxes and fees required to legally drive it on public roads. It is, in a nutshell, the way your state keeps track of all the vehicles operated by its residents.

To register your vehicle, you must show proof of ownership (i.e., the car title) and insurance coverage to your state DMV. The vehicle may also need to pass state-mandated safety and emissions inspections.

After completing the necessary paperwork and paying the registration fee and property taxes, you'll receive proof that your car has been registered — typically a license plate, a registration sticker to place on the plate or your windshield, and a registration card to keep in your car. Registration usually expires every one to two years, depending on the state, at which time you'll need to renew.

Timeless Impact

With innovation driving change at every turn, you might be inclined to discount the power of paper. 

Yet in the eyes of your state, as well as most lenders and insurance companies, no piece of technology supersedes the impact that a car title has on the value of your vehicle.

In that respect, the information provided by this essential document in its traditional form may very well prove timeless.