Straw Purchase
Q. Is it against the law to sell a vehicle to grandchildren and show only the grandmother on the retail loan installment contract? The grandchildren’s credit is so bad that they cannot be anywhere near the loan documentation.
A. What you are describing is a “straw purchase”, and it violates your signed dealer agreement. When a dealership enters into an agreement with any lender the dealer is making certain warrants to the lender. These warrants stipulate that (1) the person the dealership identifies as the customer is a real person and that this same person is in receipt of the property; (2) all down payment funds are unencumbered funds — free and clear monies with no liens; and (3) the vehicle is as described.
When any of these conditions are not met the dealership’s liability increases to full, unconditional recourse. The dealership’s reputation with the lender may be irrevocably damaged, and the lender may be able to prosecute for bank fraud. Read your dealer agreement and tell your lender the situation up front. They just might surprise you and approve the deal with the grandmother listed as the primary buyer and the grandchildren listed as the secondary buyers.
The question you must answer is what is your integrity worth? Hopefully, you decide it is worth more than one deal.
RV Executive Today, June 2003.