Can a Bank Seize a Documented Vessel Without a U.S. Marshal?

I’ve been trying to help my boat neighbor negotiate a loan modification with her bank. She is late on her payments, but she is a liveaboard, so we are talking about her losing her home. We have exchanged correspondence with her bank, and they provided copies of the original loan application package — including a statement signed by her that promised she would not live aboard the boat. This morning, after she left the vessel to go to work, the boat was seized by a private repossession company and towed out of the harbor with all of her personal property aboard. This was a Coast Guard documented vessel, so my first concern was whether they complied with federal law. I had understood that a documented vessel can only be seized by a U.S. Marshal. Regardless, she was prepared to give up the boat, so I am surprised the bank seized it without any warning. Does she have any rights at all in this process?
Unfortunately, there is not much the boat owner can do, other than to follow the bank’s instructions for the retrieval of her personal property and to be sure the bank complies with state law regarding the repossession and sale of personal property.

Our reader’s reference to the method for enforcement of a maritime lien is partially correct. Under most circumstances, a creditor must utilize a very expensive federal court procedure to foreclose on a maritime lien, and this procedure calls for U.S. Marshals to conduct a “civil arrest” of the vessel. Mortgages, however, are not necessarily burdened by that requirement.

In 1996, the U.S. Court of Appeals for the 11th Circuit held that the parties to a mortgage contract may agree to allow for a private repossession of a vessel. The court did require that a private repossession must comply with all state laws relating to repossession, but the procedure may be done without utilizing the federal lien enforcement procedure.

As a consequence of that 1996 case, virtually all vessel mortgages now include language allowing for the bank to take possession of the vessel “without judicial process” in the event of a default. This is the “agreement” between the parties that the court approved of in mortgage contracts.

There is also some discussion in legal circles that creditors holding other types of maritime liens may take advantage of this procedure if they have a contract, such as a slip rental agreement, that includes the “without judicial process” language. That, however, is a discussion for another day, since no court has ruled on that scenario yet.

So, the bank in our reader’s case was within its rights to use a private repo company, assuming it complied with state law. The bank, in this case, has been doing this for a while, so the repossession itself was probably done in compliance with all state laws and regulations. The most significant of those regulations in California require that (a) the repossession agency must be licensed by the state of California; and (b) the repossession itself must have been performed without a breach of the peace.

The most significant post-repossession requirements for the creditor are that it (a) allow the boat owner an opportunity to retrieve his or her personal property; (b) it serve the boat owner with a notice of intent to sell the boat when it disposes of it; and (c) it allows the boat owner an opportunity to redeem (recover) the vessel if he or she cures the default (this is usually only possible by paying off the full remaining balance of the loan).

A lender may save a lot of money through a private repossession procedure, but this procedure brings with it certain risks and additional regulations that are not a part of the more expensive federal procedure. The federal Ship Mortgage Act (46 U.S. Code sec. 31301) is a very “lender friendly” body of law, and it preempts state law in many — but not all — areas of consumer protection commonly found in state law. Similar to many areas of maritime law, the Ship Mortgage Act was drafted with commercial merchant shipping in mind, and recreational boating is thrown into the same legal environment, without much concern for the consequences.

However, once the decision is made to proceed with a private repossession, the lender has waived the federal protections found under the Ship Mortgage Act and instead opted to proceed under state law.

One of the more interesting issues that must be addressed under a private repossession concerns the repossession of a vessel known to be a liveaboard, such as the case described by our reader. If the bank had used the federal procedure, a warrant for arrest would have been served by the U.S. Marshals, and the arrest order usually includes an order summarily evicting anyone found to be aboard the vessel, on the spot.

Conversely, a private repossession of a known liveaboard vessel in California may, under some circumstances, be required to comply with California residential foreclosure and eviction procedures. And, to make matters even more complicated, the boat owner may waive the limited protections that do exist, if the liveaboard status is in breach of a prohibition against liveaboards in the loan and mortgage contracts, or in the slip rental agreement.

This is one of those areas of maritime law where slightly different facts may lead to very different conclusions, so it is important to discuss a specific case with an experienced maritime attorney. This is especially true if the foreclosure of your boat loan will mean that you are losing your home.

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