Is it illegal to sell a car with outstanding finance on it without telling the buyer, even if you sell it “as is”?

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Is it illegal to sell a car with outstanding finance on it without telling the buyer, even if you sell it “as is”?

Asked on October 2, 2012 under Bankruptcy Law, Illinois

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

Yes, it is completely illegal:

1) It is a material (or important) misrepresentation (or lie), since when someone buys a car, they reasonably may assume they are buying one that is unencumbered unless specifically told otherwise. You have therefore committed fraud and also breach of contract (the agreement by which it was sold) by doing this.

2) Saying that a sale is "as is" does NOT protect you when you are aware of a significant issue like this one and misrepresent or fail to disclose it. An "as is" sale protects you from conditions which you, as seller, were not and reasonably would not have been aware of--like, for example, a problem with rust on the undercarriage or cylinder heads which has not yet risen to the level that you would have noticed it. You are obligated however to disclose significant issues, whether mechanical, financing, of title, etc., of which you are aware.

FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

Under the laws of all states in this country the seller of all items is required to disclose to all potential buyers all matters that materially affect price paid or desirability of the item being sold before the transaction concludes. If there is an outstanding loan on a vehicle that which is security for the loan, then such was required to have been disclosed before the sale.

The loan secured by the vehicle affects the vehicle's fair market value.


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