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U.S. braces for Katrina car scams
Flooded autos may arrive rebuilt on used-car lots across nation
ST. BERNARD PARISH, La. -- As the vast vehicular wreckage wrought by Hurricane Katrina is carted away, law-enforcement and insurance officials are anticipating the arrival of tens of thousands of those vehicles on used-car lots across the U.S.
Already there is anecdotal evidence of flood-damaged vehicles turning up on used-car lots in Florida, Arizona, New York and Oklahoma, authorities said. Two months ago, at least seven 2005 Nissans listed in the National Insurance Crime Bureau database as hurricane-damaged were sold at an auction in Los Angeles.
A task force of insurance investigators and Louisiana law-enforcement officials is building a database of flooded cars to try to prevent as many other vehicles as possible from being spruced up and foisted upon unsuspecting used-car buyers. The database at
www.nicb.org already lists more than 205,000 vehicles.
On a brisk afternoon earlier this month, Tim Boucher stood in the median of a four-lane roadway in St. Bernard Parish, La., checking the paperwork of truck drivers hauling away Hurricane Katrina-damaged vehicles.
Boucher, a special agent with the National Insurance Crime Bureau working on the database, said: "It's really going to be incumbent upon the consumer to check" it.
As he spoke, sport-utility vehicles with an inch of mud and straw on the floor, mini-vans with seats cracked and puckered by water and one car after another with the rank smell that comes from being submerged in muck were towed away.
Nearly four months after Hurricane Katrina swamped New Orleans and pounded the Mississippi coastline, thousands of cars, mini-vans and trucks remain on streets or buried under wreckage. Thousands more have been towed away, into the murky and lucrative world of salvage cars.
While most experts agree that cars that have been submerged in saltwater should never be driven, they also agree that as many as half of the vehicles that were damaged by Katrina will likely be rebuilt and resold.
Why? For one thing, about half of an estimated 500,000 vehicles that were damaged by the storm weren't covered by comprehensive insurance, and with no insurance money to buy a replacement, the owners may be enticed to clean them up and resell them.
The other reason is loopholes in the nation's system for tracking vehicles that have been totaled.
If a flood submerges a vehicle, many states require that the title reflect the damage by listing the car as "salvaged" or "flood damaged." But experts agree that it is relatively easy for a rebuilder to buy a flood-damaged vehicle at auction, fix it up and "wash" the title of any evidence of the flooding by obtaining a new title in a state where title laws are weaker.
`No salvage on the title'
"What the smart individual who wants to be deceptive will do is take that title to another state like Arkansas, do a title washing and then take that car to Illinois as an Arkansas vehicle with no salvage on the title," Boucher said.
Jim Watson, of ABC Auto Parts in Blue Island, Ill., and the president of the Automotive Recyclers Association, said he has heard rumors of flooded vehicles arriving in Illinois but has no concrete evidence.
"It's real early in this market," he said. "They're still trying to sort out the cars down there."
Herb Lieberman, a Santa Fe Springs, Calif.-based recycler and board member of the recyclers association, and others in the salvage industry say they hope that the Katrina disaster gives some momentum to a long-stalled effort to complete a nationwide database of vehicle identification numbers. With that state officials could easily track an automobile's state-by-state lineage before issuing a new title; currently, about half of the vehicles in the nation are listed in a VIN registry.
Salvage dealers also are drawing up proposed federal legislation that would create a national standard for cars that are totaled, a "certificate of destruction."
Under the proposal, when a licensed mechanic or insurance adjuster determines that the cost to repair a car exceeds its cash value, its VIN would be permanently retired. That would mean the vehicle's owner couldn't obtain a new title in another state, or slap the VIN of a totaled car onto a stolen auto of similar make, model and year.
Without such legislation, the Automotive Recyclers Association's Watson said, "We're going to see these [flood-damaged] cars in the market for the next three or four years."
Such legislation has previously been opposed by the insurance industry because rebuilders pay more for salvaged cars than scrap companies do.
The removal of flooded vehicles is part of a broader effort, overseen by the Federal Emergency Management Agency, to clear debris that stretches for 100 miles along the Mississippi coastline and into the New Orleans metropolitan area.
Because there is a thriving market for stolen vehicles, autos are being handled differently than the rest of the debris. Identifying and tracking the hurricane-damaged vehicles not only prevents fraud but makes it easier for the vehicle's owner--or the insurance company--to try to recoup some of the vehicle's value by selling it to a rehabber or for scrap. An analysis by the consulting firm Towers Perrin estimated that insured losses from damaged automobiles were between $1 billion and $2 billion.
Auto experts offer tips
Automotive experts warn that a car that has sat in saltwater is bound to have problems, even if it is repaired. Saltwater corrodes metal parts, gums up joints and damages electrical and computer systems, potentially ruining air bags among other things. Another problem is that the water could leave behind traces of mold or worse, such as chemicals or E.coli, in the vehicle's interior.
"To me, the biggest concern about cars that are sitting in brackish water is air bags," said Lt. Allen Carpenter, head of the Louisiana State Police insurance fraud section. "You're dealing with a corroded sensor that may or may not work."
In order to create a database of VINs from flood-damaged cars, a plan was devised in which local governments would tow the vehicles to designated lots, where state police and insurance investigators would then jot down the VINs and plug them into the database.
But the plan didn't work because most of the parishes were too overwhelmed with other problems.
In Louisiana, the state police, along with the National Insurance Crime Bureau, took over the task on Sept. 30, a month after the storm, and they have been trying to catalogue as many as 350,000 damaged vehicles in the New Orleans area ever since. Besides the checkpoint in St. Bernard Parish, police officials and insurance investigators are going street by street in New Orleans and jotting down VINs on clipboards.
The challenges they face are evident in the Lower 9th Ward, which was devastated when the levee that runs parallel to the neighborhood broke. On a recent tour of the neighborhood, there were demolished cars scattered on streets, pushed up against trees and crushed underneath houses that were lifted off their foundation.
"When you start hearing estimates of 350,000 cars and there are 28 of you, and as many NICB agents, that's a lot of cars," said Louisiana State Police Sgt. Gary Bridges. "It's a huge job. . . . You tell the guys, `This has never been done on this scale.'
"It's kind of hard to pump them up because you don't know how long you're going to be doing this," he said, adding, "You just have to keep your sense of humor."
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How to identify a flood-damaged car
- Stain marks, rust, mildew, sand or silt under the floorboard carpet
- Dried mud under the dashboard, behind wiring harnesses and in alternator crevices
- Rust on screws in the console and other areas where water normally would not reach
- Rust and water residue in the electrical wiring system
- Anything unusual in the vehicle's title history
