One of the cool things about a Bug chassis is that the VIN is stamped right on the chassis, not on some behind-the-window dash tag that might be long gone.
For anyone who doesn't know, the VIN for a Bug is stamped on the center tunnel of the chassis, towards the rear of the tunnel where it is flat but before it forks out into the two sides of the engine cradle. I guess a picture is worth more than the above number of words so...here is where you can find a VIN on a Bug chassis:
The reason that's significant is because, as long as you can find the VIN, you -- or the seller, actualy -- should be able to get a replacement title for it fairly easily. You can either work directly through whatever state's DMV the car was title in, or, alternatively, I've heard of people using online agencies that specialize in finding/replacing lost titles. I've never used any of them, so I don't have any personal experience. But the basic idea is that you pay them a rather modest fee and they act like information bounty hunters to track down and replace that title for you.
Here is an article as a starting point:
Lost Title at The Unofficial DMV Guide
Beyond that, just Google search terms like "lost title" or "replacement title" and see where the gods of the internet take you.
The one possible pitfall is that they car really only release a replacement to whoever was on the title to begin with. For instance, if you buy a project from somebody and only have a bill of sale in hand and then you later need the title -- for yourself or for years later when you go to sell it to someone who might not even be in your state -- the VIN win trace back to whoever held the title to the chassis. This could be a HUGE mess for you later on. Even if your particular state doesn't need you to hold a title for the car, my strong advice is DO NOT buy ANY project car without a title (UNLESS you already plan to use another chassis for which you do have a title).
Said another way: If you're buying the rough car
only for the body and plan on using another chassis (with a corresponding title), then all you need is a bill of sale, even if the body is sitting on an old chassis for the convenience of moving it.
But if you ever plan on using that original chassis that's already under the car,
my advice is to have the seller either get a replacement title for the chassis that he can pass on to you...or DON'T BUY THE CAR.
DVMs don't care about you. They don't care about your project. They don't want to be bothered by common sense. They want to see your title. If you don't have a title, the car doesn't exist (or at the very least, you can't show that you own it.) It's true that some states don't require a title in order to register you car. The problem is that you then own a car that can't ever be sold to anyone in any state that does require a title. If I seem paranoid about this it's because one of my cars is still hanging in limbo for just such a reason. It was owned and titled in Michigan. That guy sold it to someone in New Hampshire who didn't need a title in his state, so he never got one in his name. Fast forward a few years to when I bought the car using just a bill of sale. Well, Pennsylvania requires a title, but the seller didn't have it and couldn't get it because the original owner was now in the distant past. Oy Vey! *very frustrated*
So to answer your question...
What I do when I find a rough project that has a chassis but doesn't have a title is that I offer to pay for the seller to get a replacement title. In my opinion, if the seller balks at this or refuses to do it, I'm not so sure it's someone you want to trust to be in the chain of ownership of your car. You could get stuck with a car that, like you said, is just a fancy lawn ornament.
The time to have this crisis is BEFORE you buy the car. It really isn't that hard for someone to resurrect a lost title for even the ugliest old Bug chassis. Just find the VIN and jump through a hoop or two to get a replacement title. From there on, everyone's life will be much easier.
