What you should know about maritime boat liens.
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The meaning and context of maritime boat liens are difficult to comprehend, even for seasoned industry professionals. This can be attributed to a confusing mixture of the federal and state regulations which govern these matters. Such diversities have given rise to a substantial body of legal rulings, interpretations, and opinions. It is an unfortunate reality for those involved in boat transactions that maritime lien issues are not always clearly defined. This article presents an overview what boat liens are all about, how they are created, and various options for recording and enforcement. You will also gain some insight with regard to hidden liens, contractual liens, recorded liens and how they relate to Coast Guard vessel documentation, state titling, and registration.
A lien by most definitions is the right to take action against the property of another as settlement for a debt or obligation. Of course, this raises the questions of how such right is acquired and what actions must be taken for enforcement. There is also an issue of whether a claimant's lien attains priority as compared to those of others with respect to the same property.
Dealing with boat liens requires an understanding of the diverse bodies of law which govern such matters. The federal government's regulations originated from an antiquated set of admiralty rules which have evolved into what is now referred to as maritime law. On the other hand, the states also have boating related statutes which are based more on common law. A familiarity with both sets of regulations is a key factor in determining which rules to apply in boat lien situations.
Maritime law can cover any type of boat, but is more attuned to those engaged in commerce. Under maritime rules, a boat is said to have its own persona with respect to the creation of debts and liabilities. This means that any resulting liens will remain with the boat itself instead of the owner. With the exception of preferred mortgages, there are no requirements for the recordation of maritime liens. They can accordingly remain hidden or unknown to interested parties and will survive any subsequent owners.
Boating regulations will vary by state, but most have statutes which deal with the creation and enforcement of boat liens. Although more limited in scope, they do play a considerable role in the absence of any overriding maritime regulations. State laws confer mechanic's or storage lien rights in some cases, but they are more oriented toward the establishment of boat financing priorities.
Under maritime law, a provider of goods or services which are essential to the boat acquires automatic lien rights when denied payment. Such rights are additionally conferred under most state laws to non-documented boats when the provider holds possession. An owner may also grant contractual lien rights in conjunction with boat financing agreements in either jurisdiction.
With the exception of preferred mortgages, lien rights acquired under maritime law must be enforced through a federal district court. In this case the boat is arrested by a federal marshal who then implements the liquidation. Non-judicial or summary remedies are available under state law for most financing and certain possessory liens. Settlements may also be implemented in state courts by mutual consent of the parties or where they are non-maritime related. In the case of preferred mortgages, the mortgagee has an option of foreclosing in either jurisdiction.
One of the most confusing aspects of boat liens is the manner in which they are prioritized. Maritime liens for goods, services, and operational liabilities are ranked according to their nature. Within each category, the time of occurrence is also a factor with the latest event taking priority. Such liens typically gain priority over preferred mortgages and other financing agreements. Financing liens are in turn ranked according to the time on which filed for recording with the earliest having priority.
Uniform Commercial Code(UCC)filings are state or county level recordings which can be used to perfect financing interests in boats that are not eligible for state titling or Coast Guard documentation. A UCC filing affords priority over subsequent filings of the same type, but are subordinate to preferred mortgages and state title recordings. UCC filings generally expire after a certain number of years unless renewed. Non-judicial remedies are available for this type of lien.
State Title Recordings
In those states that issue boat titles, a security interest can be recorded against the title itself. Such event is usually shown on the title certificate which is then held by the lien-holder in most cases. Recordings of this type will take priority over any UCC filings, but are subordinate to preferred mortgages on Coast Guard documented boats. State title boat lien recordings do not expire and will stay in force until released by the respective lien-holder. Non-judicial remedies are available for this type of lien.
Preferred Mortgage Recordings
A preferred mortgage, as duly recorded on a documented boat attains top priority with respect to financing liens. However, they are subordinate to other types of maritime liens. Mortgages are prioritized according to the time received for recordings and will remain effective until offset by a release filing or discharged through a court of law. Preferred mortgages can be enforced through a federal court or non-judicially under state laws. However, deficiencies may not be recoverable under the latter.
As a general rule, liens or claims can not be arbitrarily recorded on the state level without the owners written consent. An exception to this would be UCC recordings as these can be filed unilaterally. Tax liens may also show up arbitrarily on the state title records of some jurisdictions. With regard to Coast Guard documented boats, there is a process by which claims of a maritime nature can be unilaterally recorded. This does not however validate the claim and merely places a cloud on the vessel's underlying abstract of title.
With the exception of state titles, supplemental recordings can usually be implemented that will alter contractual lien rights or confer them on another party. Supplements may include amendments, assignments, extensions, and assumptions. In some cases, lien priorities can even become subordinated to a lesser filing. Such recordings will not typically diminish any rights of lien enforcement by the party to whom granted.
When it comes to detecting boat liens, its a matter of due diligence in checking all appropriate agencies where such recordings may have occurred. With regard to non-recorded liens, it will be necessary to survey any potential vendors that may have provided parts, supplies, or services to the boat. In the end however, there is no absolute assurance that all claims and liens will have been discovered. The affected parties should therefore look to title warranties and other guarantees in case of such events.
A boat lien recording will typically remain active until it has expired or been discharged by the lien-holder. If a discharge is required, it must be implemented within a reasonable period of time according to most regulations. These are frequently ignored however and such failure may become problematic during subsequent transactions. If the lien-holder can not be found, court action may become necessary to vacate the recording.
Maritime liens of a non-contractual nature may expire if not acted upon within a given period of time. This is of little consolation however with respect to claims of lien filed against Coast Guard documented vessels. Although ineffective, these will remain outstanding as a cloud on the abstract of title until offset by a discharge or court ruling. UCC financing liens on the state level will automatically expire after a certain number of years unless renewed.
As you can see, there are numerous issues associated with the creation and enforcement of boat liens. The consequences are substantial if not implemented in strict accordance with the applicable regulations. It may therefore be worthwhile to retain the services of a qualified attorney to help navigate such troubled waters. A boat documentation or titling professional can also afford valuable assistance with regard to boat lien searches and recordings.
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2/16/2022 - Page initiated by Team BoatWiki.