I traded in a my car with CarMax when purchasing one of their vehicles. While parked at 45 degree angle, the front portion of my engine was slightly in water so Geico replaced the engine I specifically asked Geico if there would be any issue with me selling the car as I had already planned to trade in my car before this. 1 month after CarMax emailed me saying that the car had flood damage I had to take the car back. I ran a CarFax and C.L.U.E report and there was no mention of Flood damage, Geico confirmed that it should have never said flood. Geico talked to CarMax at that time, I was under the impression it was all worked out. 110 Days later, I get a letter from a lawyer saying they were suing me to take the trade in back. I have paid 3 car payments since this.
Debt Settlement Attorney
This is too involved. You need to consult personally with a lawyer, the internet isn't going to solve your problem. Good luck.
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Lemon Law Attorney
Mr. Castagliuolo is correct, you will need to contact a consumer attorney and have him or her review all of the paperwork you executed at the time of sale and research whether or not the title to your trade-in has been branded. While ordinarily there is no legal requirement for a consumer to disclose the history of a trade-in vehicle I have reviewed a number of vehicle sales files that contain language that require the purchaser to convey "marketable title" or have other similar requirements regarding trades. Each case is different so a detailed review of the facts and the documents is necessary.
Disclaimer: This response is based solely upon the limited information provided in your question; additional facts may be necessary and may lead to a different response. The attorney responding to this question is licensed only in Florida and this response is intended for informational purpose only and not intended as legal advice in your particular state. Additionally, the response is not intended to create an attorney client relationship.
Construction / Development Lawyer
You state, " I get a letter from a lawyer saying they were suing me. . . ". That pretty much answers your question. Yes, they can sue you. Now get a lawyer. Given the facts as you state them, Geico looks to be a wonderful third-party defendant, and you a third-party Plaintiff. Ask your attorney what I might mean by those statements.
While I'm Board Certified in Construction Law with years of contracts and litigation experience, and I still warn you that with any free advice you generally get what you pay for.