The rules and regulations for titles and what paperwork is required to prove ownership of a vehicle vary by state. Some do not require titles on certain vehicles, so in order to sell them a bill of sale and current registration is often needed.
Whatever paperwork is required, a buyer should carefully inspect it just like they would physically inspect a vehicle's interior and exterior before buying it, Bailey said. Rips and tears, lines crossed out or dates changed by hand can all cause problems.
"Another situation is if I buy a car from Jeff and I throw that paperwork aside and then, now I decide I'm going to go in and register it," she said. "But let's say on the title, he made a mistake and there's lines through it or dates changed, and I dealt with Jeff two years ago. I don't know his number, I don't know how to reach him and I have a title with all kinds of mistakes or erasers on it."
In many states, such a degraded title is null and void, she said.
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"So your only thing left is to try to bond the car and only certain states will allow you to do it. But really, at that moment, you don't own your car."
It's also vital to double check that the vehicle identification number (VIN) imprinted on the car matches what's written on its paperwork. Allen and Bailey say they find that a digit is off in about 20 percent of purchases they try to make, thus ending a sale or halting it until the VIN can be corrected.
"In the end, you just don't want bad paperwork. It takes too long to clean it up," Allen said.
Bailey adds that having a proper title and registration on file also provides protection from fires and other unexpected situations.
"If your title burned up and you register it in your name, you just go down and get a duplicate title," she said. "Also, if there's some big theft or fraud or if [the vehicle] gets impounded or [someone tries] to do a lean sale, you'll get notified."
—By CNBC's Jeanine Ibrahim
Tune into "The Car Chasers" on CNBC Prime.