How Can You Find Out About Unrecorded Vessel Liens?

In reading your article on maritime liens in the last issue of The Log, I had a few questions that I was hoping you could follow up on. In that article, you indicated that a maritime lien may be valid even if it is not recorded with the Coast Guard. If that is the case, how can a boat buyer know if a lien has been placed on the vessel? Similarly, how can a boat owner find out if an unrecorded lien has been placed on a boat that he or she already owns?

We received quite a few emails after our discussion of maritime liens in the last installment of this column. Boat owners are uncomfortable with the idea that an unrecorded lien may be lurking out there somewhere, and they want to know more about the nature of these claims. This discussion may be more suited to a semester-long class in law school, but a brief overview may be helpful, nonetheless.

Much of the confusion surrounding the operation of maritime liens is due to the fact that they differ considerably from liens against real property. If a contractor has a claim on real property, he files a claim of lien with the county where the property is located. In California, the filing of that claim with the county will start a clock, which requires the contractor to either file a lawsuit or release the claim within 90 days. The filing of the claim therefore has a significant legal consequence.

If the contractor files a lawsuit and is successful, he gets a judgment against the homeowner and he may file that judgment with the county to establish a permanent lien against the property. Again, the filing of the judgment lien has a significant legal consequence. With that judgment lien in place, the contractor may take steps to foreclose on the property to collect his judgment (subject to possible senior claims asserted by other lienholders and mortgage lenders). He cannot foreclose upon the property unless he has taken all of these steps.

A claim against a vessel is handled differently. If a contractor or other service provider completes a project on a boat, and that project was authorized by the owner of the boat, the service provider has a maritime lien against the boat until the claim is satisfied. Period.

No recording of anything is required, and the lien remains in place even if the boat is sold to a new owner without notice of the lien. This assumes that the project itself is a service that will qualify as a maritime lien – but, in most cases, any service that is actually provided to the boat will qualify for a maritime lien when the work is completed, without filing any documents with anyone.

With the maritime lien established, the lienholder may institute proceedings in federal court to foreclose on the vessel and collect the funds that are owed to him, subject to any defenses asserted by the boat owner, and again subject to possible senior claims asserted by other lienholders and mortgage lenders. No recording is necessary, and the lawsuit may be initiated as a ’sneak attack’ to prevent the boat from running away before things are resolved. As such, maritime law professors have long referred to a maritime lien as a ’secret’ lien.

The document that is ’placed’ on a vessel (i.e., recorded with the Coast Guard) is simply a notice that somebody claims to have a lien. The recording of that notice has no bearing whatsoever on whether the lien is valid, and the filing of the notice therefore has no significant legal consequence.

Many valid liens are never recorded, and many misinformed people record a claim of lien with the Coast Guard under circumstances where they do not have a valid lien. The Coast Guard takes no position on the validity of a maritime lien. Furthermore, the notice stays on the vessel’s title history forever, unless a ’Satisfaction of Claim of Lien’ is subsequently recorded by the claimant or the vessel is sold through a federal court procedure.

This system is obviously not perfect. However, it is important to understand that recreational vessels operate within a legal framework that was developed to address the needs of international merchant shipping.

A Coast Guard-documented 30-foot Bayliner is ’registered’ under the same laws and the same registration system as a 1,000-foot oil tanker. An oil tanker purchases goods and services all over the world, and a U.S. system for the recording and foreclosing of a lien won’t be much help to someone who sells groceries to a big ship in China or Russia.

With this in mind, let’s address the reader’s question regarding the discovery of liens on a boat.

Notwithstanding the confusing system of lien recording, a buyer should always obtain an Abstract of Title from the Coast Guard to see whether anyone has recorded a notice of claim of lien. This will alert the buyer to anyone who has taken the steps to record a notice of a claim against the boat, and the claim will need to be cleared up whether or not it is valid.

After resolving any recorded claims, a buyer must consider the possibility of unrecorded liens. This requires a diligent analysis of the boat’s history and the likelihood that the seller of the boat paid all of his or her bills. Is the owner current on slip fees and insurance? Delinquencies on both of these expenses will give rise to a maritime lien.

And if the vessel’s insurance has expired, the boat may be liable for a recent accident that the seller is not disclosing. Has the boat undergone major repairs within the past few years? If so, does the owner have proof that the contractor was paid for those repairs?

If the boat has a professional crew, has the crew been paid?

All of this falls under the heading of ’due diligence.’ It is not an exact science, but the investigation should be fairly simple. If the boat appears to have been well cared for through the years by careful and diligent owners, it’s likely that they paid their bills.

The purchase transaction itself may also protect a buyer, since a well-drafted purchase agreement will include language that requires the seller to indemnify the buyer for any undisclosed liens. An indemnification clause is only as good as the person standing behind it, so again we must go back to assuming the seller is solvent and can be located.

The reader’s other question concerned the possibility of unrecorded liens that may exist on a vessel you already own. This is actually a simple question. Is there anyone out there who did work for you on the boat whom you have not paid? If so, that person has a lien. If not, there are no liens — unless the previous owner failed to pay somebody, as discussed earlier.

Maritime liens are complicated, and they are frequently misunderstood — even by lawyers and judges. If you are facing a maritime lien issue, be sure to contact a qualified maritime attorney.