A Lesson on Liens

I own a 42-foot documented motor-yacht and am having a dispute with an engine mechanic who worked on the boat. He failed to complete the job that he was hired to do and he overcharged me for the work that he did complete. When I refused to pay his final invoice, he recorded a lien against my boat with the Coast Guard. I don’t think the lien is valid, but the Coast Guard has refused to remove it. What can I do?

The short answer is that you may need to file a lawsuit and ask a judge to sort things out if you are unable to resolve the problem directly with your mechanic.

The Coast Guard will allow practically anything to be recorded against the title of a vessel, so long as it includes a notarized signature and a declaration to the effect that the lienholder believes the lien is valid. In fact, the Coast Guard’s National Vessel Documentation Center warns that ’neither the filing of a notice of claim of lien nor the acceptance by the Coast Guard of such a notice is a guarantee that the claim is valid or enforceable.’

As a consequence of this Coast Guard policy, a lien document will remain on the vessel’s title history until the lien claimant removes it, or until a court order instructs the Coast Guard to remove it.

A lien claimant does not actually record a ’lien’ with the Coast Guard. The instrument is actually described as a ’Notice of Claim of Lien’ (NCL). The lienholder therefore files only a notice, rather than an actual lien or a document with any real legal significance.

Further complicating the process is the fact that the recording of a maritime lien is optional. A maritime lien is automatically perfected at the time of the transaction that creates it, and unlike a lien on real property, a maritime lien will be valid even if the lienholder never files a single piece of paper with the Coast Guard.

In light of the convoluted lien recording process, why bother to record a lien (or NCL) at all? There are several reasons. First, in the event of a foreclosure by another creditor (a mortgage holder for example), notice of the action must be given to all other lienholders who are known to exist. Recording the NCL will therefore keep a lienholder informed as to other lien enforcement activity involving the boat. Second, the enforcement of a lien, whether it is recorded or not, generally requires the involvement of a federal judge and a ’civil arrest’ of the boat by a U.S. marshal. This is an extremely expensive process, and it may not be a realistic option if the claim against the boat is relatively small.

The recording of an NCL, however, is an effective method for a lienholder to get the attention of a boat owner, without undergoing the expense of a foreclosure.

This leads us back to the scenario described in the original question: The lienholder certainly gets the attention of the boat owner, but what if the NCL is frivolous? Unfortunately, if your engine mechanic/lienholder won’t cooperate, the only option is to file suit. The court may then order the release of the NCL and, under certain circumstances, it may be possible to recover damages from the mechanic for the bad faith filing of the lien.