SACRAMENTO, Calif. - The national wave of auto dealership closures has come crashing down on thousands of people who are on the hook for used-car loans that dealers were supposed to absolve.

When a car buyer still owes money on a vehicle he is trading in, the dealer promises to pay off the outstanding loan, then resells the vehicle. But as more dealers go out of business, some are sticking consumers with the bill. Lenders can then go after the previous owner who thought the debt was paid, or repossess the car from the new owner who assumed it came with clear title.

"It's devastating for people when it happens because they have two car payments and they can't afford them," said Rosemary Shahan, president of Consumers for Auto Reliability and Safety, a Sacramento-based nonprofit that lobbies on behalf of vehicle owners. "Their credit is destroyed for no fault of their own because the dealer defaulted."

Regulators in California and other states, including Florida, Iowa and Washington, are seeing a surge in consumer complaints. They warn the problem is sure to grow this year because of the deepening recession and continued trouble in the auto industry.

About a quarter of all car buyers are vulnerable because they still owe money on their trade-in or lease when they buy another vehicle, according to industry tracker Edmunds.com. It's become more common for a driver to owe money on a trade-in as people stretch their car payments over six or seven years to make them more affordable.

Inga and Brian Randle of Elk Grove, a Sacramento suburb, are among those who got burned.

In 2006, they bought two 2001 Mercedes vehicles, a CLK430 convertible and an E320 sedan, finding out afterward that the small Sacramento dealer had not paid off the previous owners' liens.

Creditors called, and the Randles found they owed $40,000 on the old loans.

"I stopped paying on both of those loans because I couldn't afford to keep paying. It's a huge stain on my credit - and I had very good credit," Inga Randle said. "Our life has really been affected by what's going on here."

The Randles now drive 15-year-old vehicles they own outright. Brian Randle is working more overtime to rebuild their savings, and the couple has been dragged into the dealership's bankruptcy proceedings.

A few states have programs that require dealers to post substantial insurance bonds to repay victimized car buyers. Consumers in states with no such program, or a poorly funded one, have little recourse but to sue and hope for at least a small slice of the assets if the dealer has filed for bankruptcy.

Authorities have brought charges in rare cases where they have proof of intentional wrongdoing, but local prosecutors, motor vehicle departments and state attorneys general are paying more attention as the problem grows.

California state Sen. Ellen Corbett, a Democrat from San Leandro, has introduced legislation that would require dealers to prove they are paying off a vehicle's lien before transferring the title. That's already a requirement in some states, said Jason King, spokesman for the American Association of Motor Vehicle Administrators.

Corbett's bill would require auto dealers to post bonds as high as $250,000 with the California Department of Motor Vehicles so liens could be paid off if a dealership collapses.

"It's becoming a serious problem because the consumer, through no fault of their own, may be facing financial ruin just because they purchased a car," Corbett said.

California is hit particularly hard because it has the nation's largest auto market, more dealers going out of business, and more buyers who owe money on their trade-ins.

DMV spokesman Mike Marando said the agency had 319 open investigations on dealers for failing to pay off liens or register a vehicle as of December, up from about 200 cases at the same time a year ago. It fielded 1,655 vehicle-transfer complaints against dealers from July to September, nearly double the number of consumer complaints for the same period in 2007.

Complaints also are rising in Florida.

Between March 1 and Sept. 1, 2008, Florida officials deemed valid 103 complaints regarding auto dealers' delinquent loan payments. By comparison, there were 37 confirmed complaints during the same period in 2007.

Florida also received more than 1,886 confirmed complaints of delays in title transfers during that five-month period in 2008, compared with 900 a year earlier, said Ann Nucatola, spokeswoman for the state's motor vehicle department.

Data regarding auto loan defaults are not compiled nationally, but other states have similar problems, according to the National Automobile Dealers Association, National Consumer Law Center, prosecutors and private attorneys who are suing bankrupt dealerships.

Washington state created a task force in October after an agency that oversees dealer licenses saw a 4 percent increase in complaints against dealers who failed to transfer titles.

Officials are having trouble helping consumers who still owe money on trade-in vehicles if a dealer defaults, said Mary Lobdell, an assistant attorney general for the state. For now, they are advising consumers to hire attorneys and seek a share of the dealer's $30,000 bond.

"The problem is once they've gone out of business, there's no money. You can't get blood from a turnip," Lobdell said.

Nevada Department of Transportation investigator Gordon Rogers said he is dealing with about four cases a month, double the number of a year ago.

More than 5,000 new and used car dealerships closed nationwide last year, according to industry groups. That includes 450 in California.

"Unfortunately, with this economy, we can expect to see a growing number of dealers go out of business in the next year," said Iowa Assistant Attorney General Bill Brauch, who heads the National Association of Attorneys General auto working group. "I think there are going to be problems around the country with consumers having to be made whole and consumers having to eat significant costs."

Iowa, like California, requires dealers to post a $50,000 bond, but some states' bonds are as low as $5,000. Even $50,000 is often too little to cover defaults, Brauch said.

California lawmakers took an extra step by creating a Consumer Recovery Fund in 2007, with money coming from a $1 fee on each vehicle sold. Ohio, Virginia and West Virginia also have restitution funds, according to the National Consumer Law Center and the Ohio attorney general's office.

But California's fund cannot be used yet because the state is still forming the agency that will consider claims and distribute the money.

Consumers are left to sue the dealer, which typically has declared bankruptcy and has no money to reclaim, said Armando Botello, a spokesman for the California DMV. He said the state can suspend the dealer's license or refer the dealer to local prosecutors but cannot recover buyers' money.

Before they land in trouble, used-car buyers should insist on seeing a vehicle's title to make sure it has no liens, consumer advocates say. They also say buyers offering trade-ins should first pay off the loan themselves if possible, or deal only with high-volume dealers who are part of a larger auto group and thus are less likely to fold.

"You've got to check out the dealer's financial health as best you can if you're going to let them handle your vehicle resale," said Jesse Toprak, executive director of automobile industry analysis for Edmunds.