Having purchased and sold about 20 vehicles over the years, I'm not surprised that the seller won't surrender the title until he has the money or, at least, certified funds like a cashier's check, especially with all of the cons going on these days. Still, something doesn't feel right here.
Has USAA given you instructions on how to handle the transaction? I can't imagine any bank making an auto loan where they don't have their hand in the title process somewhere. Depending on your state, USAA may ask you to send the title to them for holding until the loan is paid off, but I'm sure there is some process where they ensure the lien is recorded whether they have the physical title or not. For example, they may use an escrow service to handle the transaction.
Thank you for posting. Your best bet is to call and talk to a banking specialist who can go over all the necessary steps for payment and transfer of title. Please give us a call at 1-800-531-8722. Thank you!