Owner Liability when Selling a Used Car

a red toy car in someone's hand

If you’re selling a used car privately, you might not have considered the issue of liability. What happens if the buyer drives away and has an accident? Can you be held liable? There are ways to make sure this scenario doesn’t happen to you. The first thing to do is check with the Department of Motor Vehicles (DMV) in your state to establish the law where you live; it will usually vary from state to state. Once you know the laws of liability, you’ll know exactly how to proceed in terms of selling your used car. However, there are three standard ways to protect yourself, depending on who holds the title to the vehicle.

When You Have the Title

When selling a used car to which you have the title, you’ll need to obtain the purchase price from the buyer. (The best payment options are cash or a cashier’s check.) Once you have the payment hand, you should sign over the title to the purchaser. Note the odometer reading on the title, which should contain a space for this information. The DMV will send out a new title to the buyer.

You might be able to add an extra layer of protection. If your state offers it, you can download a "release of liability" form from your DMV website. You should fill this out, include the odometer reading at the time of the sale, and mail it back to the DMV as soon as possible. By taking this step, you can establish exactly when ownership of the car moved to someone else.

When a Local Bank Has the Title

You might be selling a used car when you don’t have the title to it. The title remains with the bank that loaned you the money to buy it. This makes things a little more complicated, but you can surmount the obstacle.

Call the bank that has the title and make an appointment to go in with the buyer. Make sure you have your copy of the title. The buyer will pay you, and you’ll pay the bank the remainder of their loan. Then you’re free to sign over the title to the car’s new owner.

When an Out-of-State Bank Has the Title

These days, it’s quite common to have the title held by a bank that has no branches anywhere near you. This situation can make a title transfer a little harder. To make sure you incur no liability, fill out a bill of sale and go with the buyer to your local DMV. You will be able to fill out a temporary operating permit that lets the buyer legally drive away in the vehicle.

From there, you need to pay off the loan with the bank, which will then issue a new title to the new owner.

Insurance

After selling a used car, you need to call your insurance agent. Ask the agent to remove the old vehicle from your policy or switch your coverage to a new car, if you’ve bought one.