The short answer is that our reader has very few options in a case like this. His former business partner has foreclosed upon a delinquent Preferred Ship Mortgage pursuant to the provisions of the federal Ship Mortgage Act of 1920. This law may have some oppressive consequences when it is exercised against a yacht, but a brief maritime law history lesson may help to explain things.
International maritime law is the oldest body of law in the world. Its roots may be traced back to the island seafaring and trading nation of Rhodes in the Mediterranean Sea almost three centuries ago. The law developed to assign liability for lost, damaged or stolen cargo and to protect the rights of maritime creditors.
The procedures for the enforcement of maritime liens and mortgages developed under this ancient umbrella over hundreds of years, mostly in the context of global merchant shipping. A ship, or even a yacht, may be located on any ocean on the planet at any given time, and it may be registered in any seafaring nation in the world. The tools for the enforcement of a maritime lien or mortgage allow for the swift and efficient foreclosure of a lien by seizing the vessel without notice or warning, before it has an opportunity to disappear over the horizon to some unknown or unfriendly foreign port.
These rules may seem pretty arcane when the lien enforcement is performed against a live-aboard sailboat in a marina. The rules were not, however, developed for the yachting community. hey were developed for the international shipping community. And, for better or for worse, the United States Supreme Court has ruled that a recreational yacht on navigable waters is a “vessel” for the purposes of federal maritime law. The procedures for the foreclosure of a delinquent “preferred ship mortgage” are therefore the same for an oil tanker as they are for a 30 foot sailboat. Even if the owner is living aboard the sailboat.
Our reader asked about his “rights,” but as noted above he has very few options. Federal law provides that a maritime lien or mortgage may be enforced through a unique procedure that calls for a United States Marshal to seize, or “arrest” the vessel. Our reader admitted that his loan payments were delinquent, and as such the vessel arrest was probably legitimate. The vessel was towed to an impound yard where a commercial custodian will keep the boat until the court orders it to be released or sold. The custodian will inventory the personal property aboard the boat and make it available for the boat owner to pick up. “Personal Property” is defined as anything that is not covered by the mortgage, which usually means anything that is not customarily used in the operation of the vessel.
After the vessel is arrested, the court case will resemble a conventional breach of contract lawsuit. If the boat owner is unable to offer a defense, the boat will be auctioned and the proceeds of the sale will be applied against the loan balance.
The only way to derail the sale of the vessel is to file bankruptcy. But unless the boat is used in a legitimate business, the bankruptcy will not prevent the eventual sale of the vessel. This law is very “creditor friendly.”
A vessel arrest is an expensive proceeding but it is nonetheless a legitimate enforcement tool for a small claim against a small yacht. And, regardless of whether you are enforcing or defending a vessel arrest, this is a complex and unique area of legal practice and an experienced maritime attorney should be contacted immediately, even if you have already retained a bankruptcy lawyer.
David Weil is licensed to practice law in the state of California and, as such, some of the information provided in this column may not be applicable in a jurisdiction outside of California. Please note also that no two legal situations are alike, and it is impossible to provide accurate legal advice without knowing all the facts of a particular situation. Therefore, the information provided in this column should not be regarded as individual legal advice, and readers should not act upon this information without seeking the opinion of an attorney in their home state.
David Weil is the managing attorney at Weil & Associates (weilmaritime.com) in Long Beach. He is an adjunct professor of Admiralty Law at Loyola University Law School, is a member of the Maritime Law Association of the United States and is former legal counsel to the California Yacht Brokers Association. He is also one of a small group of attorneys to be certified as an Admiralty and Maritime Law Specialist by the State Bar of California. If you have a maritime law question for Weil, he can be contacted at (562) 438-8149 or at firstname.lastname@example.org.