Rollbacks & Unwinds Tool

Overview

When a vehicle is returned by the customer or the contract is canceled due to the inability to obtain financing, dealers must adhere to the DMV procedures to void or unwind registration on the deal. Dealers occasionally must unwind or roll back a deal due to various issues outside the dealer’s control, but the proper DMV procedures for doing so on the registration depend on the circumstances. Outlined below are the key definitions, legal background, lawful processes, and required documentation when voiding or rolling back registration on a retail vehicle sale in California.

Key Definitions

Rollback (spot delivery cancellation)

Rollbacks occur when a vehicle has already been delivered and operated by the buyer causing registration fees to be due, but is later returned to the dealership.

Voids

Referred to as an “unwind” by DMV, a void occurs when a Report of Sale is completed (not submitted), but the buyer never takes delivery of the vehicle.

Legal Background

Under California law, vehicles must be accurately designated as “new” or “used” on any conditional sale agreement. A “used” vehicle may not be advertised as “new.” California law defines a “new vehicle” as one constructed entirely from new parts that has never been the subject of a retail sale, registered with the DMV, or registered with the appropriate agency or authority of any other state or country. Once a vehicle is sold (except by the factory to the dealer or in a same-line-make dealer trade), registered with DMV (or any state or country), or otherwise “deemed” to be used (e.g., demonstrators, loaners, manufacturer sales or distribution vehicles, etc.), it is considered “used” under California law.

When a dealer rewrites a contract with the same exact customer after a financing failure on a “new” vehicle, DMV permits the dealer to sell the vehicle as “new” on the second contract. However, if the second contract involves a different buyer or an added co-signer, the DMV considers the vehicle to be a “rollback,” which requires that the vehicle be designated on the second contract as “used.” DMV considers any “new vehicle” purchased from a dealer, included on a copy of the Report of Sale and then returned to the dealer, to be a “rollback” vehicle which must be disclosed as a “used vehicle” to the next buyer. If a deal is unwound before a customer takes delivery of a “new vehicle” and a dealer voids the Report of Sale, the DMV still considers the vehicle to be “new.”

Processes and Paperwork

Voids (Unwinds)

In these situations, where the buyer has not taken delivery of the vehicle, mark all copies of the Report of Sale (REG 397 or REG 51) as “VOID,” and complete a Statement of Facts (REG 256). The Statement of Facts should note:

• Reason/circumstances for voiding the Report of Sale
• The vehicle never left the dealer’s possession
• The vehicle was never operated causing registration fees to become due

No paperwork must be submitted to the DMV concerning the unwind, but all copies of the voided Report of Sale and Statement of Facts must be retained for a minimum of four years in case of an audit.

Rollbacks

Unlike an unwind, a Report of Sale cannot be voided for a rollback vehicle. The titling and registration deadlines still apply and failure to pay fees by these deadlines will result in assessment of administrative service fees and other penalties. The fees can either be posted in the name of the dealer or the first buyer. If the dealer returns vehicle licensing fees paid by the buyer, prorated licensing fees may be collected from the subsequent buyer based upon the original purchase price and date of sale. If a certificate of title has be issued to the first buyer, rollback procedures do not apply. If this is the case, the rollback must be handled as a transfer from the first buyer to the dealership. All fees are due as if the sale occurred in the normal course of business.

NEW Vehicle Rollback

To process a rollback the following documents are required:

• REG 343 (Application for Title or Registration) filled out in the name of either the second buyer or the dealer (if registering the vehicle in the dealer’s name)

• REG 397 (New Vehicle Report of Sale) filled out for the first buyer

• REG 51 (Used Vehicle Report of Sale) issued to the second buyer

• REG 262 (Bill of Sale and Odometer Disclosure Statement) from the first buyer to the dealer. If the first buyer refuses to sign, or cannot be found, describe the problem on the REG 256 – Statement of Facts

• REG 256 (Statement of Facts) must be completed with the following information:
  • Name of first buyer and the date the vehicle was returned to the dealership
  • Description of the circumstances of the return
  • Whether the return was voluntary or involuntary
  • Description of the type of sale (conditional sale contract, lease, bill of sale, etc.)
  • Whether a trade-in was involved and, if so, whether the trade-in was returned or whether cash was paid instead of returning the trade-in
  • Whether a downpayment was made on the sale and, if so, whether it was a cash downpayment or cash in addition to the trade-in and whether the downpayment was returned

• Second REG 262 (Bill of Sale and Odometer Disclosure Statement) used to disclose the odometer reading at the time the vehicle was transferred from the dealer to the second buyer

• Registration Fees based upon the first buyer’s purchase price and date of sale, and the transfer fee for the second buyer

• No Smog Certification necessary as long as the original REG 397 is submitted

USED Vehicle Rollback

The Report of Sale cannot be voided when a customer returns the vehicle to the selling dealer, and the transfer of title from the customer back to the dealer must be treated as a “used vehicle rollback.” According to the DMV’s Vehicle Industry Registration Procedures Manual, the Used Vehicle Report of Sale cannot be voided if the buyer returns the vehicle after it has been sold and delivered—even if returned before the registration or transfer application is completed. To process a used vehicle rollback, the following documents are required:

• Certificate of Title or REG 227 (Application for Duplicate Title)
  • The information for both the first and second buyers must be completed on the back of the title under the New Registered Owner section. For the first buyer, put their information behind a Roman Numeral “I.” The second buyer’s information should be put behind a Roman Numeral “II.” (e.g., I. Jane Smith 123 Anywhere Street, Anytown, USA; II. John Doe, 456 Anywhere Lane, Anytown, USA.
  • If the lienholder changes, the same Roman Numeral designations should be followed in the New Lienholder section.

• REG 101 (Statement to Record Ownership) filled out on behalf of the second buyer, showing the name of any legal owner/lienholder. Be sure to correctly fill out the lienholder section, if applicable, or write “NONE” in the lienholder section

• REG 166 (Lien Satisfied) from the legal owner for the first buyer (if applicable). This is not necessary if the legal owner remains the same for the second buyer

• REG 256 (Statement of Facts) must be completed with the following information:
  • Name of first buyer and the date the vehicle was returned to the dealership
  • Description of the circumstances of the return
  • Whether the return was voluntary or involuntary
  • Description of the type of sale (conditional sales contract, lease, bill of sale, etc.)
  • Whether a trade-in was involved and, if so, whether the trade-in was returned or whether cash was paid instead of returning the trade-in
  • Whether a downpayment was made on the sale and, if so, whether it was a cash downpayment or cash in addition to a trade-in, and whether the downpayment was returned

• REG 262 (Bill of Sale and Odometer Disclosure Statement) The bill of sale must be completed from the first buyer to the dealer. If the first buyer refuses to sign, or cannot be found, describe the problem on a REG 256 Statement of Facts

• Two REG 51s (Used Vehicle Report of Sale) One for the first buyer, and one for the second buyer

• Second REG 262 (Bill of Sale and Odometer Disclosure Statement) used to disclose the odometer reading at the time the vehicle was transferred from the dealer to the second buyer

• Smog Certification, if applicable

• Registration Fees, as applicable, including two transfer fees

Forms

To assist in streamlining the Rollback Statement of Facts requirement, CNCDA worked with Reynolds and Reynolds to develop a modified REG 256 (Form LAWCA-229U) that contains spaces to provide the required information. That form along with more details about dealer rescission rights and buyer cancellation rights can be accessed in the 2025 CNCDA F&I Compliance Manual, available to all members on CNCDA Comply.

More details on this and other dealer DMV processes can be accessed in the DMV Vehicle Industry Registration Procedures Manual.