How To Protect Yourself

Once you have selected an overseas car for purchase, it should be inspected before conclusion of the deal by an independent, competent mechanic. It is recommended that a broker involved in the deal is not to be used for this purpose for two obvious reasons: (1) Brokers are usually not competent as mechanics, and they can confuse having sold a number of cars with real knowledge and ability to evaluate the mechanical condition of a particular car; (2) Brokers may be conflicted in that any negative conditions they report may kill the deal and ultimately come between them and their commission.

Also, in our experience, buyers who are successful frequently do not rely exclusively on any one source concerning the provenance, history, value, or acceptability of the car. Astute buyers often can maintain confidentiality, but check these items with knowledgeable and independent sources who are not part of the deal, and have no reason to tell anything other than the truth.

So what are the important factors in the transaction? The general answer is, that unless you are buying at an auction, where the house sets the rules and makes the contract under which the sales are conducted, the buyer has the ability to control the written terms and conditions of his purchase. This is power for the buyer that should not be given up. At the end of the day, this is sometimes the only real protection one has, and if it is squandered or not exercised properly, the buyer may find himself beyond help – or in a very expensive and precarious position, in the event of a problem.

When the transaction is conducted in a foreign country, experience shows three main reasons for making a lawyer-generated contract that will “stick” in the country of purchase.

First, the act of making the written contract formalizes the sale and serves to create a check list of items and details to help to provide the best protection for the buyer. If the seller is presented with the contract and has issues with particular items in the contract, it is better to find out then and there what the problem may be, rather than make the simple “good old boy” contract – pay money, ship the car, and then come to find out that the unstated issues are fatal to the quality of what was purchased.

Second, the act of making the written contract often flushes out issues that the seller has tried to ignore, gloss over, or actually misrepresent. Seeing it in writing presented on lawyer‘s letterhead often gets to the bottom of the issues before money changes hands. The goal is to protect the buyer. Making contracts that cannot be enforced in the seller’s country, or contracts that do not protect the buyer, are not helpful. After all, the goal is to never sort out car deal problems after the fact through litigation in a foreign country.

Interestingly, at the conclusion of a recent deal in Europe, counsel for the seller confided that when buyer showed up with a California-based attorney, the seller’s side became particularly forthcoming and concerned to be sure to make the full and complete disclosures.

Third, the lawyer takes the heat off the client. The attorney can put the tougher questions in the negotiation and into the written deal, and control the deal in favor of his client, much more easily than the client who is not familiar with the local laws, the contract process, and the contract terms and conditions required for his protection.

For example, in many countries, the contracts can become complicated, time consuming, and exhausting in terms of the numbers and types of meetings with attorneys, notaries, bankers, engineer/mechanical experts, the owner, the exporters, the transporters, customs, etc. The laws may require the use of notarized contracts involving a complex series of writings, multiple licensed notaries who can only deal in particular languages, and multiple translators who are hired to make translations of the contracts in particular languages for each of the participants. For the seller to transfer his “ownership” and be paid money may be sufficient for the seller, but it may prove a nightmare for the buyer who has not legally documented the sale, has not documented the disclosures and guarantees, and is now confronted with competing claims or with fatal gaps in documentation when seeking to transfer ownership or import the car into the US.

More importantly, by using an attorney, the client/buyer has an opportunity to have the deal structured in his favor and take the initiative away from the seller in shaping the transaction. When the lawyer comes into the deal, the buyer merely says to the seller, “It’s basically a done deal so long as my lawyer approves it.” At this point, the buyer may have established a friendly relationship with the seller, which the buyer is reluctant to change by switching to a more formal contract posture himself. Also, the buyer may be so hot to do the deal that he cannot possibly represent his own best interests. Finally, even if the above factors were not present, the buyer is almost always not competent to represent himself on a contract under the seller country’s legal system. This is where a successful buyer often lets the lawyer “conclude” the deal and thereby protect the client.

If a broker is involved in the deal, the broker performs important functions, but he is not usually technically competent to negotiate and draft the legally binding contract for these types of vehicles and transactions. There is, after all, a distinction between brokerage services and legal services. Moreover, the broker is paid only if, and when, the deal is closed, and this presents a conflict. In a recent example, a buyer was represented by a foreign broker who had the car, negotiated price, and had concluded the transaction on behalf of his client. However, after the fact, the buyer discovered that “his” broker had a built-in conflict, since the broker was systematically cutting important corners, making very soothing, but completely false representations to speed the deal, and was simply hell bent on quick closure and money in his pocket. All of the promised detail work, independent inspections, independent advice, and proper contracts this broker promised to secure to protect the buyer never materialized.

Once the deal is concluded, two other things should happen as in domestic deals. 1) Final inspection of the car and collection of the car from the seller, and 2) Release of funds. There have been instances where these details escaped the foreign buyer, and he did not have the car inspected, approved, and then kept under his control just prior to release of funds to the seller. Instead, buyer released funds and did not simultaneously remove the car from the seller’s premises. When the proud new buyer came around later to collect his purchase, he was introduced to the world of switched or missing parts.

There are some good deals on interesting cars to be had overseas. Smart buyers line up necessary assistance and do their research to keep the experience productive and enjoyable.

For more information contact Howard at (619) 232-2422