Whether you've just sold your used car, or you've just bought a used car, you need to make sure to file all the paperwork and close the deal properly. While the laws governing the sale of motor vehicles vary from state to state, the general outline of the deal is similar. For the specific steps, make sure you check with the department of motor vehicles (DMV) in your state.

As a buyer, you will have to prove you are the new legal owner of the car in order to register it. In most cases, this means you will have to get the title (often called the "pink slip") from the seller or possibly a bill of sale. With title in hand, go to your state's motor vehicle registry, where you may be required to pay sales tax before they will give you the new registration, title and (in some states) new license plates.

As a seller, you will need to make sure you receive the proper payment for your car and limit your liability (in case the new owner crashes the car right after driving away in it). Below, we take a look at the sales transaction from both sides: the seller and the buyer.

Getting Payment
Cold, hard cash is the easiest way to collect payment for a used car. The buyer might request a receipt for the cash. If you provide a bill of sale, this will serve as a receipt. When cars are sold for amounts above about $2,000, a cashier's check is recommended. When cars are being sold remotely, an escrow service can be used to facilitate the transaction. The escrow service essentially verifies that the funds are paid and transfers them from the buyer to the seller.

It's unwise to accept promise of future payment from a buyer even if it is someone you know. If the car is wrecked, their motivation to pay you back is greatly reduced. You are well within your rights to refuse to float loan payments and in most cases, the buyer will understand and quietly back down.

Limiting Your Liability
What if someone drives away in the car you just sold and they get into an accident? Can you be held responsible? There are two ways to deal with this concern. Record the odometer reading and sign the car's title over to the buyer. In most states, a release-of-liability form can be downloaded from the registry of motor vehicles Web site. For links to the different registry sites, see "What Fees Should You Pay?"
Seller's Checklist
Have a smog test performed (if required in your state).
Fill out a release-of-liability form, including current mileage, and file it with the registry of motor vehicles.
Provide maintenance records (if available) to the new owner.
Receive payment either in cash, a cashier's check, or through an escrow service.
Take the license plates off the car if required by your state.
Clear out the glove compartment, other interior storage areas and the CD player.
Hand over both sets of keys to the new owner along with any warranty papers for the battery, tires, etc.
Cancel insurance for the car.