Clearly, this sort of fraud is one of the biggest pitfalls in used car shopping. But by educating yourself and applying a few basic principles of smart car shopping, you should be able to protect yourself. As a consumer, knowledge is power. So it's important to understand what a salvage title is, how the title washing process works, and how one of these vehicles can eventually be offered for sale.
Laws vary from state to state, but salvage titles are generally issued to a vehicle that is extensively damaged, usually from 70% to 90% of its retail value. This damage can be caused by almost anything -- a devastating accident, a flood, vandalism, or fire. Insurance companies will then designate the vehicle "totaled," take possession of it, and the state then issues a salvage title.
At this point, the car is usually sent to an auction so the insurance company can retrieve some of the money from the loss. Some buyers at these auctions are interested in using these totaled vehicles strictly for parts. Used auto parts is big business, and these companies will typically disassemble the car and sell undamaged parts, recycling what's left of the "car-cass." Others buyers are reputable vehicle rebuilders who will fix a totaled car so that it can meets state inspection and safety laws and then resell the once-wrecked vehicle with a full disclosure. In this case, a buyer usually enters into the deal knowing exactly what was done to repair the vehicle. You might ask why a person would buy a vehicle with a salvage history? One word: Money. Salvage-titled vehicles are worth significantly less, so carry lower prices.