Question: I bought a boat a few years ago and took over the loan payments from the previous owner. The deal was structured as a charter, where title remained in the seller’s name and I was required to make monthly rental payments until his loan was paid off. I made payments each month by depositing funds into a bank account that had been set up for this purpose, and the seller signed a bill of sale for me to hold until the loan was paid. I eventually paid off the loan and tried to contact the bank to release the mortgage lien, but they refuse to talk to me without a signed authorization from the previous owner. I need to clear this up quickly because I am trying to sell the boat, but I have unfortunately been unable to locate the previous owner. What are my options? I can’t sell the boat or even transfer title into my name unless the bank agrees to release its lien.
Answer: We can’t answer this question without scolding our reader for allowing herself to get into this situation.
There is no legitimate reason for a boat purchase to require the buyer to take over the seller’s loan payments, but it does happen. All boat loans include a provision in the fine print that will deem the loan to be in default if the borrower assigns the obligation to someone else without the lender’s permission. A buyer may want to take over the seller’s loan payments for several reasons, but the most common is the buyer is unable to qualify for a boat loan because of their bad credit score. A buyer may also want to keep title in the seller’s name to retain a desirable slip in a marina or to defer payment of use tax. Each of these schemes either violate the terms of a contract or rise to the level of a fraud or a crime. But even if a buyer successfully navigates the legal obstacles, he or she may run into unforeseen problems years later, as is the case with our reader.
Our reader is unable to talk to the lender because consumer privacy laws restrict the information that can be shared by a lender with the public. The lender should have recorded a satisfaction of the mortgage lien with the Coast Guard when the loan was paid off, but they are unlikely to even open the file unless our reader can track down the previous owner of the boat.
If she is unable to find the previous owner, our reader’s only hope at this point is to file a lawsuit against the bank. The lawsuit would be for “declaratory relief” rather than a suit for monetary damages, which means that she will ask the court to issue an order to the Coast Guard to remove the mortgage lien. She will need to prove that she has an interest in the boat by showing her “charter” agreement and other documents, including the bill of sale and evidence that she made the payments. She will likely prevail, but the legal fees and court costs will be substantial even if the lender does not defend the lawsuit.
I don’t like to use this column to scold people who contact me for legal advice, but I see a lot of this and it’s worth using this particular reader as an example. People sometimes find a way to solve one problem (in this case finding a “clever” financing option), without thinking about the possible consequences of that solution. This is one of those cases where speaking to an experienced maritime lawyer before the transaction will save money in the long run.
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 (www.weilmaritime.com) in Seal Beach. He is an adjunct professor of Admiralty Law, a member of the Maritime Law Association of the United States and is former legal counsel to the California Yacht Brokers Association. If you have a maritime law question for Weil, he can be contacted at 562-799-5508 or at firstname.lastname@example.org.