Buying Used Heavy Equipment? Make Sure You Are Aware of These Three Potential Risks

Buying used heavy equipment is often seen as a solid move for many companies. After all, a used backhoe, skid steer, dump truck or similar machine can be a superb value, getting companies a piece of needed gear for a budget-friendly price.

However, there are some aspects specific to used equipment that buyers should be aware of. Some of these are obvious (the condition of the equipment), but others are not quite as straightforward (does it really have a clean title?). And in the case of the latter, the answers are not always clear.

In my 30-plus years in the lending industry, I’ve seen almost everything possible in regard to used equipment sales. Here are three important tips for used heavy equipment buyers, whether you are buying from an established dealer or a private party.

Tip #1 – Equipment Condition and Warranty

The first tip is the most obvious – make sure you are 100% comfortable with the equipment’s condition, and also what happens if it stops working tomorrow.

When buying used heavy equipment, make sure you are 100% comfortable with the equipment’s condition, and also what happens if it stops working tomorrow.ACBM staffThere is no clear-cut rule here. You simply need to fully accept the terms of the sale. If you are buying from an established dealer, they may offer some type of warranty; if that’s the case, get the details and understand the limitations. If you are buying from a private seller, they probably won’t offer any kind of warranty.

There’s always an increased “wear and tear” factor with any used item. Checking the condition may not reveal everything, so there’s always some risk. That said, used heavy equipment with a limited (or no) warranty may still be a great value as long as you understand the risks.

Tip #2 – A Clear Title Is Important

The used heavy equipment should have a clear title free of liens, and a UCC search should come up clean. Now I must warn you, this is not an exact science. As the list of former owners increases, the likelihood that there is a lien in there somewhere also increases. These liens may not always come up in a search, no matter how exhaustive.

For example, banks routinely place a blanket lien on all of a borrowing company’s assets. But borrowers routinely forget this and sell equipment that theoretically cannot be sold all the time.

Here’s the scary part: if you buy equipment like this, it’s technically not yours; the law usually favors the lienholder. So, even if you have a receipt and paperwork, you could lose the equipment if the seller runs into bank trouble (believe me, I’ve seen this happen). And since your seller might already be having issues, good luck getting your money back.

Buying from a reputable seller such as a name brand dealer will often guarantee a clear title and may include some type of warranty.ACBM staffSo how can you alleviate this? As I mentioned earlier, old liens have a chance of being overlooked or not showing up, so there is no 100% guarantee. But there are steps you can take to lessen your risk:

• Buy from a reputable seller. Name brand dealers, “certified used”, the dealer who’s been in business for 50 years, etc. – these places will often guarantee a clear title (and will typically step up if that’s not the case).  In any event, be certain to ask about this: who is responsible for an old lien?
• If buying from a private seller, it helps to have a clear paper trail back to the original sale. It's even better if the seller is the original owner; at the least, checking for liens is easier.
• In the case of a “several owners in” private seller and no clear paper trail back to the beginning, you will have to trust your gut. Yes, the likelihood of an old lien being called in and tracked to your new-to-you equipment is low, but the risk does exist. Be aware of this. One thing that can make you feel better about it is how long the seller has owned the equipment. Not that the risk goes away, but if they’ve owned it 10 years without incident, that’s a better track record than if they’ve owned it three weeks.

Tip #3 – In the Case of a Private Sale, Make Sure it’s On the Up and Up

I probably don’t have to mention to avoid the all-cash sale from Craigslist, right?

That said, the obvious shady stuff on Craigslist and similar is only half the story. For example, I have seen instances where two partners had a falling out or a couple got divorced, and equipment that technically could not be sold was sold. Maybe it was intentional or maybe it was an accident, but the reason is immaterial – the law will typically side with the legal owner. In cases where this happens, the legal owner is probably not the most recent buyer (i.e., you), despite the bill of sale.

Wrapping Up  

The preceding information is not meant to scare anyone from buying used heavy equipment (again, it’s typically a great value). Instead, it’s meant to shine a light on instances that could come up.

The best defense against issues cropping up is to buy from a reputable dealer that will warranty purchases, and stand behind it regarding clear title/old liens.

In the case of a private sale, a little diligence can go a long way. But always understand there is some risk, and as the list of former owners increases, the risk also increases. And being aware of these risks (which you now are) is paramount.

Chris Fletcher is the vice president of National Accounts at Crest Capital, which offers small and mid-sized companies financing for new and used equipment, vehicles and software, as well as offering equipment sellers a simple and risk-free financing program. 

^{All views expressed in this article are those of the author and do not necessarily represent the policy or position of Crest Capital and its affiliates.}