It is understandably tempting for flooded-out property owners to try to get what they can for their water-damaged goods. Cars are no exception, and so a thriving market has sprung up in overhauling water-damaged cars and making them sellable. So long as a reasonably clean bill of health can be produced, most state laws allow water-salvaged cars to be resold. Thus many insurance write-offs quickly end up back on the roads.
However, there are good reasons why insurance companies normally consider any vehicle which has been submerged in flood waters to be a complete write-off, good only for a scrapyard. Even after the visible damage has been cleaned away, occult damage will remain in areas impossible to repair, because much of it is impossible to reach after leaving the assembly line. Perhaps the refurbished car had been able to pass a minimal inspection, but in time that hidden damage will reveal itself, and probably sooner rather than later.
Just about everyone who has tried to drive through a piece of flooded-out road has also had their engine die as they did so. Hydrolocking is a simple piece of water-related engine damage in which water which has gotten into the engine immobilises the engine's pistons. It is relatively easy to fix, because all that is required is to remove the water from the combustion chambers and then clean and lubricate them. This will allow most water-salvaged vehicles to briefly perform adequately. In the best case scenario, this will be the only damage to the vehicle but where the vehicle has actually been submerged, almost certainly it conceals worse.
Submersion removes the lubrication protecting the vulnerable parts of the vehicle from corrosion. In a vehicle which has been submerged for any significant length of time, everything from the combustion chambers to the inside of seat belt mechanisms will likely be corroded. Most of these places are inaccessible (and also can't easily be seen), making it impossible to deal properly with the corrosion. If this hidden corrosion has not yet locked up working parts, it will. It is only a matter of time.
No matter how thoroughly the interior fabrics of a car have been cleaned, some degree of trapped moisture will almost certainly remain. This makes the car's interior susceptible to mold or mildew. Even if the mold can't be seen, it creates a distinctly musty odour. At the best this will be merely unpleasant, while at the worst mold can cause or aggravate asthma and various other lung diseases. While a really thorough cleaning won't remove the threat of mold, it might temporarily remove the musty odour that might otherwise have warned of its presence.
The worst water damage is usually found in the car's electrical system and various on-board computer systems. Water quickly shorts out and destroys these systems. The greater part of these monitors and connectors, not to mention the miles of wiring, is utterly inaccessible to a mechanic, and thus cannot be repaired. We use surge protectors for our tabletop computers and even so are careful never to spill water on them; but there is no surge protector that can protect a flooded-out car. Sooner or later, the overstressed and corroded electrical and computer systems will fail utterly: and the unwary purchaser will be the proud owner of a pile of lifeless plastic.
IDENTIFICATION AND AVOIDANCE
Your first warning that something might be wrong with the sale will be the unusually low price. You should always inspect any used vehicle you buy, but a low price should be a red flag.
Previous water submersion may leave a 'high water mark' in hidden places: look under the trunk carpet or behind a door panel. Finding standing water anywhere is a sure sign that the car has been previously submerged. Erratic dashboard displays and quirky interior lighting are the visible signs of much more extensive electrical and computer damage. A musty smell warns of hidden mold.
Finally, whenever buying any used car, ask for its CARFAX vehicle history report. Among other things, this report will mention if an insurance claim has ever been made on the vehicle, and for what reason.