There's only one thing you really need when buying a car from a private seller, and that's money. If your seller has been a little sloppy with documentation, and isn't quite sure where the title is, then he'll have to apply for a replacement. Of course, this needs to happen before either keys or cash change hands.
What's a Title?
A car title determines legal ownership of a vehicle. Without it, you'll be unable to prove to the authorities, in case they ask, that it's really your car. You will also have trouble registering the car and getting insurance, which every state -- except New Hampshire -- requires if you have a registered car. The owner, whether he's working for a dealer or just dealing privately, must transfer the title to you when he sells.
Certificate of Title
Most car titles carry basic information, including the vehicle's make, year and model; the vehicle identification number; the name and address of the legal owner; and information on any liens on the vehicle if it was purchased with a loan. In some states, the lender will hold the title if the loan is outstanding; this is the primary reason that private sellers don't have physical title when they sell.
Transfer of Title
Normally the seller signs a transfer statement on the physical title, and the buyer uses this to apply for a new title. A seller without a title must apply to the state division of motor vehicles for a replacement or duplicate. This means filling out a form, paying a fee and receiving the title through the mail. An alternative is to sign and notarize an Affidavit of Lost Title and Release of Interest. If you are the buyer, you must transfer the car into your own name within the state deadline; Washington, for example, requires this to happen within 15 days of the purchase.
Transfer of Security
Car owners can't transfer secured loans from own creditor to the next, nor can they replace their names on the loan with that of a new buyer. If the title is still held by the lienholder, then the seller needs to clear the lien with a loan payoff. If the seller is just asking for enough money to pay off the loan, and doesn't have the title, the buyer can take a risk and accept. If you do this, however, a written and notarized purchase agreement will document the sale, and your state law may require one anyway for the reporting of sales tax.
