NEW YORK (MainStreet) -- Authorities are on high alert due to a new scam on the online auto sales front: phony cash escrow services that take your money for a new set of wheels, then disappear for good.

The questions online car buyers might want to ask themselves is, How do you know if your escrow service is safe? And how exactly does a cash escrow scam play out?, a leading auto-trading website, offers this definition:

"When a buyer agrees to purchase a vehicle found online, he or she is directed by the seller to send money to a phony escrow agent, and is promised that the cash will be held until the vehicle is delivered. Once the cash is paid, the scammers cease any more contact with the buyers, never to be heard from again and the car is never delivered," according to the Edmunds website.

The car listing website also warns customers that some fraud artists use Edmunds’ name to build their own fake escrow websites, giving buyers a false sense of security that the deal is legitimate. Edmunds says that since March 2010 it has received 413 reports of escrow scams using the company’s name, and of those, about 35 consumers were victimized by escrow fraud.

Consequently, Edmunds is warning online auto buyers of the risks: “ does not provide ‘purchase protection’ plans or any other escrow-type services for vehicle sales,” notes Ken Levin, senior vice president and general counsel at “If you see a classified ad that references an Edmunds escrow service, please report it immediately to the website hosting the ad.”

The good news is that there are no shortage of red flags that will tell you an online scammer is out to separate you from your bankroll. Here are a few:

  • Out-of-state sellers with a story to tell. If you’re buying from someone who says you need to place your cash in an unfamiliar cash escrow account because they’re deploying overseas in the Middle East or moving their family to China for a better job, get ready to be fleeced. The number one objective of a car escrow scam artist is to make you think he or she can’t meet to close the deal. Once that objective is checked off, then it’s game on for fraudsters.
  • The lure of hot cars, especially Japanese cars. The Japanese auto market was laid low by last spring’s earthquake and tsunami, and the inventory of cars from the Land of the Rising Sun is, well, dim these days. So when you’re checking Craigslist or some other online car buying site and see a Toyota (Stock Quote: TM) Prius on the market for $4,000 below book value, recognize the ad for what it is: a lure to get you to buy the car and use a fake escrow service for payment.
  • Websites that look too good to be true. Escrow scammers are experts at website design, for some reason. They can create a site that will have you thinking you’re doing business with Bank of America (Stock Quote: BAC). If your back is against the wall, and you really want to pursue the deal, then insist on having your bank track the wire to a valid escrow service, like (which is fully sanctioned by eBay).
  • Sellers who only communicate by email. A telltale sign that you’re dealing with an auto escrow scammer is when the seller insists on closing the deal via email. Most online car-buying sites (like eBay) want you to close the deal on their sites, which are safe, secure and password protected. They usually offer a reputable escrow service.

When you’re buying car or truck online, you’re buying from an anonymous seller. While the vast majority of sellers are good, reputable people, you have to account the growing number that are not.

“Buying a car online is still generally a very safe practice, and the vast majority of transactions go off without a hitch,” adds Phil Reed, senior consumer advice editor at “But when you’re buying anything online – whether it’s as big as a car or as small as a pencil – it’s always wise to take the appropriate steps to ensure that you’re dealing with a fair and honest seller.”

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at