Fredericton police are investigating a "significant fraud" involving a used car dealership in the city, the force has confirmed.

W&P Auto Sales, on Riverside Drive, closed in August.

Around the same time the company shut down, NextGear Capital, a financing company serving auto dealers, filed a statement of claim with the Court of Queen's Bench against W&P Auto.

According to court documents, NextGear Capital extended a loan of $250,000 to W&P Auto and the dealership defaulted on payments.

In the statement of claim, NextGear says that W&P Auto owes a principal balance of $136,894.78.

Customers complain

Even before the court filing, several customers complained to police about W&P Auto after difficulties getting it to pay off liens for which it was responsible under their trade-in agreements when purchasing used cars.

In September 2018, Janelle Russell and her husband, Jeremy Russell, traded in two Ford vehicles at the business in exchange for a new-to-them Nissan Murano.

As part of the agreement, the dealership was supposed to pay off loans still owing on the Ford vehicles once the financing for the couple's new car came through.

Janelle and Jeremy Russell. (Submitted)

CBC reached out to several dealerships in Fredericton and confirmed it's often the dealer's responsibility to pay off the existing loan on the "trade-in" vehicle when the financing comes in for the new vehicle.

There can be a short lag between the time when the new financing comes in and when the old loan is paid. The timing depends on schedules and paperwork, but typically the old loan is paid within a couple of weeks.

But for the Russells, the outstanding loans went unpaid. About a month after trading in their vehicles, they started getting phone calls.

"We started receiving calls from Ford credit that our previous loans hadn't been paid off with them on the car or the truck that we traded in," Janelle Russell said.

Russell called W&P to find out what was going on. She was told that Ford only accepted payments made through Canada Post and because of a postal strike, the payment was taking a long time to arrive.

All of the consumers are in a really tough spot - Jennifer Ingram

A few weeks later, Russell learned that Ford Credit does accept payments by FedEx and other carriers. She went back to W&P with this information and asked again why the loan had not been paid off. She didn't receive an answer.

By November, the loan on the car had been paid off, but the loan on the truck remained outstanding.

By Christmas, the Russells wanted answers.

"And [W&P] wouldn't answer our calls, our messages, emails — nothing," Russell said. "They ignored us completely.

"So my husband's parents went in to try and even get some paperwork out of them because they hadn't even given us a bill of sale or anything, and all they would give them for paperwork was the loan information where they had applied for us to get the loan on the car."

That's when Russell went to the police, who tracked down the truck.

"It had been sold five different times with the lien on it," she said. "It had made it all the way to Maine. And no one caught the lien on it. The dealerships don't know if they registered it wrong, how they hid that … but they managed to do that somehow.

The police told Russell they couldn't help and that she needed to find a lawyer.

How it's supposed to work

Under the Personal Property Security Act, a lien on a vehicle must be registered with the provincial government, said Jennifer Ingram, a lawyer who practises in the area.

The information is available on a searchable online platform similar to Service New Brunswick.

"The system is set up so that when a car gets bought and sold you're supposed to do the PPSA check to make sure that if there's a lien on it, you know about it and that lien gets taken care of before you buy it. That's the way it's supposed to work."

Depending on the financing agreement, it can either be the dealership's responsibility to do the lien check, or the financier's. But that check wasn't always happening in the case of W&P Auto.

According to Ingram, a vehicle with multiple liens wouldn't necessarily signal financiers, either.

"A lot of the banks wrapped up in this aren't your big five. They're not your big banks ... they're not doing serial number searches either. They're just making sure their interests are getting registered on the cars."

There's not much recourse for customers.

"You can have consumers who are paying on cars that are at risk of being towed, because that's what the financing companies will do," Ingram said. They'll come in and they'll tow the car and it'll be gone, and they'll still have the loans outstanding on it."

The Russells found a lawyer who sent a demand letter, stating the loan had to be paid by the end of March, and finally W&P complied.

But the delay in paying the loans ruined the Russells' credit rating just as they were looking to purchase a house.

Because of their damaged credit score, they weren't able to get a mortgage and their hopes of owning a home were dashed.

They also discovered that the car they bought from W&P Auto has a lien on it from a previous owner. But Russell said they don't have any choice but to keep making the payments on the car for another year to restore their credit rating.

Not the only ones

The Russells aren't alone in their concerns.

In February, Traci Taylor traded in her Hyundai Elantra at W&P Auto for a Toyota Corolla. But the original loan on the Elantra she traded in wasn't paid, leaving her with two car payments.

"I was paying $128 biweekly for my old car. The same week, I was paying $224 for my current car. I was paying it all for three months."

At that point, Taylor said she had to stop making payments on the old loan.

Taylor said she contacted the police and a lawyer, but isn't pursuing any action at the moment.

She said eventually the loan on the Elantra was paid by W&P after months of chasing the company.

Allegations of fraud involving W&P Auto Sales are being investigated by police. (Google Images)

No charges have been laid against W&P Auto. None of the allegations have been tested in court and the company hasn't filed a response to NextGear Capital's statement of claim.

Fredericton police confirmed there is an investigation, but they won't discuss details.

CBC News made several attempts to speak with W&P owners William Cornford and Peter Kennedy — by phone, Facebook and by visiting their homes.

Kennedy was in his driveway getting into his vehicle when CBC asked him about the alleged fraud.

"I have nothing to say about that," he said.

For the Russells, who still have no mortgage, the whole experience has left them feeling frustrated.

"We are just so angry and it has just caused us so much stress," Russell said. "I just cry every time we talk about it because they hurt us so bad."