Can I Use My New Boat While I Wait for Documentation?

We purchased a boat last month and retained a marine documentation service to do the title work. The bill of sale provided that the boat was to be sold free and clear of all liens, claims, and encumbrances. The documentation service advised us that the Coast Guard was backlogged and, as such, we would not receive the Certificate of Documentation for several months — but that, in the interim, we were free to use the boat as we pleased. Unfortunately, we have now been advised that clear title cannot be issued because the Coast Guard “abstract of title” indicates that a lien was recorded several years ago. The documentation service and the seller’s agent are both working to clear the title, but nobody seems to be in a hurry. Can you shed some light on how this process should be handled? Are we free to use the boat while the title transfer is in limbo?

This question requires an understanding of the role of a documentation service and a “seller’s agent” in the boat purchase process, as well as an understanding of the Coast Guard documentation process.

A vessel documentation service provides guidance, research, and clerical assistance in the processing of claims against a vessel and vessel title transfers. Most qualified documentation service companies are members of a national trade group known as the American Vessel Documentation Association (on the Web at www.americanvessel.com). AVDA members provide a valuable service and we highly recommend using them for any vessel title issues. They are not, however, a title insurance company, and they are not obligated to clear up a title problem that may have been undisclosed or overlooked prior to the purchase of a boat.

The reader’s question also noted that the buyer was relying on help from the “seller’s agent” to clear up the problem — but that reliance is also misplaced. The reference to an “agent” is a little vague, but the reader was presumably referring to a yacht broker.
Yacht brokers owe various fiduciary obligations to their clients, and an analysis of the title history will probably fall under that umbrella. A broker is not, however, required to fulfill the obligations of the seller, and a buyer should therefore look first to the seller rather than the broker to satisfy the claim against the boat.

If the “seller’s agent” in this case was actually an employee or other representative of the seller rather than a broker, that person may in fact be the proper contact person. However, even if the seller diligently pursues the person making the claim, it could take months, or even years, for the seller to clear up the problem. The claimant must be located and he or she must agree to a proposal to satisfy the claim. If the claim is invalid or the claimant cannot be located, legal action must be initiated to challenge the claim in court.

As for the claim itself, we have covered maritime liens in quite a few installments of this column over the past couple of years.

The Coast Guard documentation system allows for the recording of title transfers and of mortgages and other claims against the vessel. The “abstract of title” is a record of every document that has been submitted to and accepted by the Coast Guard relating to a vessel, and it is typically used to confirm that the person selling the boat actually has “clear title.”

A buyer should always review the abstract of title and resolve any problems well in advance of the anticipated closing date for the purchase. In fact, many yacht brokers will request an abstract from the Coast Guard when they accept a new listing from a seller, so that any problems can be addressed before a buyer ever sees the boat. The reader in the case described above ran into problems because he failed to review the abstract until after closing.

Unfortunately, as we have noted previously in this column, the documentation system is not perfect. A maritime lien may be valid even if it is never recorded, and a claim that is recorded may be completely fabricated. And, since the Coast Guard takes no position on whether a claim is valid, it will usually allow a transfer of title to occur without requiring the various outstanding claims to be satisfied. In most cases, the only encumbrance that will stand in the way of a title transfer is a mortgage.

The reader in this case has submitted a Bill of Sale to the Coast Guard for recording, and while waiting for the paperwork to be processed they discovered an old claim against the boat. They will find that the claim has no bearing on the title transfer process, or on who owns the boat at any particular moment. The law will look to the agreement between the parties to determine ownership, regardless of whether the Coast Guard has processed the paperwork.

Most vessel purchase and sale agreements rely upon the transfer of purchase funds and the physical delivery of the boat to identify a moment in time where ownership transfers to the buyer. The processing of the Bill of Sale by the Coast Guard generally has no bearing on this determination, unless the contract makes reference to that event or unless there is no other contract or agreement between the parties. Therefore, the title transfer in the reader’s question is not “in limbo.” They own the boat and they are free to use the boat as they please.

The Coast Guard recording system was designed to meet the needs of merchant shipping, and members of the recreational boating community may be led astray by the complexities of the system. A maritime attorney who is experienced in these issues should be contacted for more information.