Can Lender Repossess Boat?

I own a documented vessel with a Preferred Ship Mortgage. I missed two payments, and my lender recently hired a private repossession company to pick up the boat. The bank said it will return the boat if I bring the loan current and pay the costs of the repossession, but I have a few questions about the process. First, I have heard that a lender must go to Federal Court to foreclose on a documented vessel, and that a U.S. Marshal must be used for the repossession, but that was not done in my case. Also, what exactly is a Preferred Ship Mortgage? What are my rights in connection with the repossession and my efforts to get the boat back?

A Preferred Ship Mortgage is the device used by a lender to secure a documented vessel as collateral for a loan. The use of the term “preferred” is a little confusing, but in fact any mortgage that is accepted for recording by the Coast Guard is a “preferred” mortgage — regardless of the title of the document.

Readers of this column may recall from our prior installments that a maritime lien may be valid against a vessel regardless of whether it is ever recorded with the Coast Guard. A ship mortgage is generally understood to be a type of maritime lien, since it takes the boat as collateral for a monetary obligation. However, for various arcane reasons, a mortgage is technically not a maritime lien, and as such it is only valid when and if a written document with the proper language is filed with the Coast Guard.

Since the validity of a ship mortgage relies entirely upon the document that is recorded with the Coast Guard, courts will look to the language of that document to determine most of the rights and responsibilities of the parties. Therefore, unlike a maritime lien, which arises with no supporting paperwork, a ship mortgage may include language that allows a lender to foreclose without judicial process. This means that a lender may avoid going to Federal Court and use a private repossession company rather than U.S. Marshals, so long as the mortgage includes the proper language and they comply with all applicable state laws.

Finally, a boat owner, unfortunately, has very few rights in connection with the return of a repossessed boat. If the lender uses the Federal Court process to foreclose, the owner will need to hire an experienced maritime attorney, and the rules will ultimately be set by the judge in the case.

If a private repossession process is used pursuant to the appropriate language in the mortgage, that process must comply with state law. These laws will vary somewhat from state to state — but, at a minimum, the boat owner will be entitled to a detailed accounting of the repossession costs and of any other charges that the lender wants to recover. Since the issues in these cases may vary quite a bit, you should, of course, contact an attorney for information regarding your particular concerns.