Should I ‘homestead’ my vessel?
Q: I am in the middle of a dispute with a creditor and I am researching different strategies for protecting my assets if he gets a judgment against me. My attorney suggested a way to protect my boat from being seized or attached would be to “homestead” the boat. I am a legitimate liveaboard in my marina, so I am hoping that this may be a valid solution. If I did “homestead,” would it jeopardize my Coast Guard Documentation?
A: Our reader is considering a provision of the California Code of Civil Procedure (sec. 704.710), which may protect a homeowner’s equity from being seized by unsecured creditors. The “homestead exemption” will range from $50,000 to $150,000, depending upon the debtor’s age and marital status.
The homestead exemption law includes various provisions for the protection of equity in personal property, and a person living aboard a boat, mobile home, or motor home may therefore qualify for the exemption if they can prove that it is their primary residence. However, the procedures for the sale of personal property (such as a yacht) under the homestead exemption law are more “creditor friendly” than the rules that protect a debtor’s real property.
We should also note that the homestead exemption does not actually protect the home. Instead, it protects the homeowner’s equity in the home. This means that the exemption does not protect the homeowner from a claim by his or her mortgage holder. It also means that an unsecured creditor may seize and sell the home pursuant to a court order, if they can show that it has value sufficient to pay off the mortgage and cover the exemption amount.
The homestead exemption does not require the filing or recording of any paperwork, so there is no need to be concerned about whether the vessel’s documentation would be “jeopardized.” A homeowner may file a “homestead declaration” with the County to temporarily protect their equity after a voluntary sale of the home, but this would not involve the Coast Guard.
A homestead exemption for a boat is further complicated if a maritime lien is claimed against the vessel. We have discussed the unique nature of maritime liens in quite a few prior installments of this column, so I won’t go into an exhaustive discussion here. However, some of the characteristics of maritime liens are particularly relevant to the homestead exemption.
Broadly speaking, a maritime lien will arise when a product or service is delivered to a boat or when a boat is involved in an accident. The lien is immediately perfected even if it is never recorded with the Coast Guard, and it is a secured obligation of the vessel. Since the homestead exemption protects the owner’s equity from unsecured claims only, it offers no protection from a creditor who holds a maritime lien, even if the lien is never recorded.
The homestead exemption may therefore be available to a boat owner, but it will only protect him or her from claims that are not related to the boat, and it does not prevent the boat from being seized by a creditor regardless of the nature of the claim.
Strategies for protecting assets from creditors are much too complicated to address in a maritime law column, even when a boat is involved. This involves a complicated overlap of maritime and creditor law, and a boat owner who is interested in protecting a boat from creditors should speak with an attorney – or more than one attorney – experienced in both of these areas of law.
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 (weilmaritime.com) in Long Beach. He is an adjunct professor of Admiralty Law at Loyola University Law School, 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 562-438-8149 or at email@example.com.
Ask your question online at thelog.com.