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Conditional Delivery of Vehicles in North Carolina: Specific Regulations Apply

In North Carolina, conditional delivery sales are becoming more and more common, but dealers invariably violate the very law behind which they seek to hide, and thus are, arguably, waiving their right to claim the sale was actually conditional.

First off, what is a conditional delivery? A conditional delivery is, at its core, a sales tactic by which dealers allow a customer to take possession of the vehicle they have selected and drive it home while the dealer works out the financing for the purchase. It’s intended to allow the customer to get used to the vehicle, grow to like it, and, more importantly, stop shopping around for other vehicles at other lots while the dealership arranges to get the purchase financed. Properly done, the customer actually knows the car is not theirs and is fully aware of the fact that, if financing is not obtained, they must return the car to the dealership. I’ll go into the reasons why I think dealerships feel it necessary to engage in these practices in a later post. For now, let’s look at the North Carolina Conditional Delivery statute, which specifically regulates this act:

§ 20-75.1 Conditional delivery of motor vehicles.

Notwithstanding G.S. 20-52.1, 20-72, and 20-75, nothing contained in those sections prohibits a dealer from entering into a contract with any purchaser for the sale of a vehicle and delivering the vehicle to the purchaser under terms by which the dealer’s obligation to execute the manufacturer’s certificate of origin or the certificate of title is conditioned on the purchaser obtaining financing for the purchase of the vehicle. Liability, collision, and comprehensive insurance on a vehicle sold and delivered conditioned on the purchaser obtaining financing for the purchaser of the vehicle shall be covered by the dealer’s insurance policy until such financing is finally approved and execution of the manufacturer’s certificate of origin or execution of the certificate of title. Upon final approval and execution of the manufacturer’s certificate of origin or the certificate of title, and upon the purchaser having liability insurance on another vehicle, the delivered vehicle shall be covered by the purchaser’s insurance policy beginning at the time of final financial approval and execution of the manufacturer’s certificate of origin or the certificate of title. The dealer shall notify the insurance agency servicing the purchaser’s insurance policy or the purchaser’s insurer of the purchase on the day of, or if the insurance agency or insurer is not open for business, on the next business day following approval of the purchaser’s financing and execution of the manufacturer’s certificate of origin or the certificate of title. This subsection is in addition to any other provisions of law or insurance policies and does not repeal or supersede those provisions. (1993, c. 328, s. 1.) (Emphasis added).

Needless to say, this law, like most laws, is not a model of clarity. However, its intent is clear if you simply read the emphasized portion in the center. Essentially, the vehicle’s insurance has to remain on the DEALER’S policy. Now, granted, I never see clients who complain about conditional sales done correctly, so I don’t know the statistics on correct versus incorrect conditional sales in North Carolina, but I can say that of all the clients who have come to me with this sort of issue, the dealer has ALWAYS required the customer to put the vehicle on their own insurance policy, in violation of this very law that regulates the practice.

Why is this important? The North Carolina General Assembly made this law in 1993, after the North Carolina Attorney General at the time spoke out against this practice, which was being abused then in the same way it is being abused now, by making customers think the purchase is actually ‘final’ when, in the dealer’s mind, it is not. In an attempt to curb some of the worst abuses, the General Assembly made this provision, in part, to try to make it crystal clear to a customer driving off the lot that the car wasn’t theirs. That is, if a person is told to leave the dealership with the car while the salesperson works on getting them financed, and the dealer’s insurance policy is in effect, it would be a bit of a stretch for the customer to think that he or she actually owned the car.

However, that’s not the only law that applies to conditional deliveries. In addition to requiring the dealer to keep a ‘conditionally delivered’ vehicle on its own insurance policy, it must also keep dealer tags on the vehicle, NOT temporary tags. Again, the legislature has spoken, and was pretty clear in its mandate that if the dealer gives you temporary (30-day) tags you are considered a ‘bona fide purchaser or owner’:

§ 20-79.1 Use of temporary registration plates or markers by purchasers of motor vehicles in lieu of dealers’ plates.

(c) Every dealer who issues temporary registration plates or markers shall also issue a temporary registration certificate upon a form furnished by the Division and deliver it with the registration plate or marker to the owner.

(d) A dealer shall:

(1) Not issue, assign, transfer, or deliver temporary registration plates or markers to anyone other than a bona fide purchaser or owner of a vehicle which he has sold.

(2) Not issue a temporary registration plate or marker without first obtaining from the purchaser or owner a written application for titling and registration of the vehicle and the applicable fees.

(3) Within 10 working days, mail or deliver the application and fees to the Division or deliver the application and fees to a local license agency for processing. Delivery need not be made if the contract for sale has been rescinded in writing by all parties to the contract.

Again, because these abuses tend to go hand-in-hand, invariably clients who come to my office have placed their own insurance on the vehicle they purchased AND have been given temporary tags and a 30-day temporary marker receipt. Indeed, there is essentially no difference in the forms these clients have filled out and the forms filled out by a regular customer (who hasn’t been victimized by one of these deals), except for the fact that the dealer claims that it couldn’t get the customer financed and tries to change the deal weeks or even months later.

So at the end of the day, if you have purchased a car in North Carolina, have received temporary tags (or have transferred tags from your trade-in vehicle), and have placed the car on your own insurance policy, chances are that, as a matter of law, the vehicle is yours (this is, of course, assuming that you have signed all other appropriate paperwork). A dealership that tries to tell you otherwise is simply wrong and is abusing their power.

At the Norris Law Firm, we can help uncover and put a stop to these practices.

A North Carolina Lemon Law firm serving North Carolina Consumers