Can Boats Be Withdrawn from Marina’s Lien Auction if Lender Doesn’t Attend?

I recently attended a public auction conducted by a marina in Florida, looking to purchase a particular boat that happened to be Coast Guard documented. The boat was subject to a mortgage held by a lender for around $200,000, and to a $46,000 lien held by the marina. The marina was prepared to accept a discount on the amount owed to them and release their interest in the boat, but the lender failed to attend the auction. After we registered with the auction as qualified bidders, we were advised that this particular boat had been withdrawn from the auction because the lender did not attend. Was this proper? Was the bank required to attend the auction to protect or perfect their lien? And, was the marina justified in withdrawing the boat from auction simply because the lender failed to show up?
This question raises a number of issues, ranging from state auction laws to the procedures for the foreclosure of maritime liens and mortgages.

The laws for the conduct of a “public” auction will vary considerably from state to state. In California, auctions and auctioneers for most items of personal property are regulated under the California Civil Code, beginning with section 1812.600. Foreclosure auctions for real property are addressed elsewhere in the Civil Code, and the Vehicle Code includes provisions for auctions of repossessed vehicles.

Our reader’s question concerned an auction in Florida, and, while I am not licensed to practice law in Florida, it is safe to assume that most states will regulate auctions and auctioneers at some level. And, it may be that the withdrawal of an item from auction after publishing its availability may run afoul of a regulation if certain notice requirements are not followed.

However, in this case, the bigger concern is the effect of a “public” auction on an unsatisfied maritime lien or mortgage. Our reader may have been annoyed by the sudden unavailability of that particular boat at the auction, but the marina probably did him a favor by taking the boat off the auction block. The auction of a boat by a private lienholder has no effect whatsoever on the status of other liens or mortgages, and the buyer at such an auction will take the boat subject to those other claims.

The foreclosure of a mortgage on a documented vessel is governed by federal statute (46 U.S.C. sec. 31325), and the procedure typically requires a lawsuit to be filed against the vessel in Federal Court. The court will order the vessel to be “arrested” by U.S. Marshals, and custody of the vessel will then be turned over to a commercial custodian until the boat is sold, or a bond is posted for release of the vessel, or the lawsuit is terminated. We have discussed lien and mortgage foreclosure in several previous installments of this column (for example, “Ask a Maritime Attorney — Foreclosing on Lien Not Necessarily Worth the Cost,” The Log, Dec. 14, 2006). 

Courts have ruled that the foreclosure of a mortgage on a documented vessel may proceed under state law, which does authorize an auction or other private remedy if all procedures required under state law are followed. However, only a Federal Court, with jurisdiction over the vessel, may order a boat to be sold free and clear of all liens.

When a lawsuit is initiated in FederalCourt to foreclose on a maritime lien or mortgage, other parties with a claim against that boat must appear in that lawsuit as “intervening plaintiffs.” A claimant who fails to appear in the lawsuit will lose his or her claim against the vessel forever. Conversely, an auction conducted outside of the Federal Court procedure will have no effect on a claimant who fails to attend the auction or whose lien is not satisfied by the auction sale proceeds.

The net effect of this is that a purchaser of a boat at the auction described by our reader would have taken the boat subject to the bank’s mortgage, and subject to any other claim that may have existed against the boat. The description of the auction as a “public” auction has no bearing on this, since a federal court was not involved in the event.

During the past several years, we have noted many times in this column that a maritime lien is a unique security device, which shares very little in common with liens against real property or other forms of personal property. A maritime attorney experienced in maritime lien foreclosure and priority issues should be contacted before proceeding with a transaction subject to these claims.

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