Tips on Buying Cars: possible Katrina car, toyota car dealer, car fax report

Question
Mr. Beck,

My husband and I recently 'purchased' a 2005 VW Passat from a local Toyota car-dealer from their used car lot.  To complicate things, we found the car at this dealer but we technically 'bought' the car VIA my father-in-law who is also a dealer.  All this was only to find out a few weeks later that the car had been in Katrina [registered 20 miles N/NW of NO, LA and serviced in the heart of NO].  We found this out when the car simply stopped running as I was driving down the road.  It is still under warranty and we were not charged for the repairs or the tow.  The visit to the VW dealer, however, was very enlightening.

The very public / high profile dealer says he traded for it from one of his mechanics who 'plays' in buying and selling cars for profit and who bought it in an auction last fall in Memphis.  This mechanic took the car upon receipt to the local VW place to have some repairs done and the maintenance  report clearly says on the first line 'customer states the vehicle has been in some water' - so this mechanic obviously knew the history of this car although he did not [perhaps] disclose this to the dealer he works for when trading.  Per the VW report, the car has had the major electrical connectors replaced, the third battery is currently in it, the third fuel pump was the problem this time, and that the 'mechanic' was given an estimate on a new 'ecm' ... and this is just the parts that I understand.  In speaking with the VW-guy, he said he'd rather have a car like this that had been in a 40-MPH head-on collision than this one.

If it helps, the car has not been titled to us yet.  When the questions arose, my father-in-law stopped the processing of the title. The title, however, on the car is clean but the car fax report says it was "registered in a county declared a flood disaster zone by the FEMA".  

I suppose the questions are thus:
1) What are our rights / obligations / recourse as far as getting rid of this car?  
2) What were the dealer's obligations to tell us about the history of the car - shouldn't they have known about this?  3) Does my father-in-law have any recourse against the mechanic who clearly knew the car's questionable history?  

Thanks in advance for your time.  If I can clarify anything about this complicated story, I will be happy to.

Answer
Amy,

This is a very complex situation.  First thing is first.  Let me explain the carfax report.  The fact that the report says that the vehicle was in the "hit area" for a hurricane does not mean that it has been involved in any type of water damage.  Carfax puts that on there so that buyers can do more extensive research on the vehicle before purchasing the vehicle.

Secondly, the situation as far as the purchase of the vehicle.  The only recourse that you MIGHT have is this.  You have enough "witnesses" that have stated that pretty much everyone knew about the damage to this vehicle that you MIGHT have some legal recourse.  The only thing that I can tell you to do is to consult an attorney that specializes in auto dealer lawsuits.  

Before you do that, I would consult the dealership where your father-in-law purchased the vehicle and see if they are willing to take the vehicle back.  I would also have your father-in-law call the wholesaler about the vehicle and threaten a lawsuit.  

Simply put the only real recourse you have is the threat of all the knowledge you have received about the vehicle and see what they all say.  

Worse comes to worse and you are stuck with the vehicle.  I know that isn't what you wanted to hear, but its the truth.

Check with the lawyer before you give up though, because I think that you might have a case.  

Let me know how this all works out and if you have any other questions.

Thanks - Jb