Title Choices Have Boater Stumped

I am in the process of buying a used motoryacht. The boat is currently registered in California, but my broker has suggested that I convert the title to Coast Guard documentation. Can you shed some light on the pros and cons of documentation vs. state registration?

Coast Guard documentation is a system of vessel titling and registration that is maintained by the U.S. Coast Guard rather than a state agency, such as the California Department of Motor Vehicles. Any boat that measures more than 5 net tons may be documented with the Coast Guard. ’Net tonnage’ is a measurement of the volume of a vessel’s cargo space rather than its weight, and as such it is a rather complicated benchmark, but a boat that measures 5 net tons usually works out to around 26 ft.

Commercial vessels that meet the tonnage threshold are required to be documented, but a recreational vessel may be documented or titled and registered in the state of principal use. Most recreational boat owners therefore have a choice of which titling system to use. As a practical matter, however, a boat owner will not have a choice if their purchase of a boat is financed.

Marine lenders will almost always require a boat to be Coast Guard documented before they will fund a loan for the boat. Lenders may be concerned about the integrity of a state’s titling procedures and systems, which vary considerably from state to state. Coast Guard documentation involves a common system of vessel titling, regardless of where the boat may be located. The system provides evidence of ownership that is internationally accepted, and it tracks the ownership and recorded lien information throughout the life of the vessel. Most state title systems do not track a boat’s title history.

Lenders also require a vessel to be documented, because that system allows them to record a preferred ship mortgage with the Coast Guard. A preferred ship mortgage is a federally governed security device that has priority over all tax liens, state-law lien, and most other maritime liens in the event of a foreclosure. The lender also has a lot of flexibility in the available foreclosure procedures, and a preferred ship mortgage is exempt from state usury laws.

Federal law sets forth specific requirements for marking a documented vessel. The number assigned by the Coast Guard must be marked on a bulkhead belowdecks, in a manner that discourages alteration. State registration systems, however, require the number (the ’CF number’ for California registered boats) to be marked with paint or a decal on the bow. The federal system therefore helps to deter fraud and theft, and it provides a cosmetic benefit by removing unsightly numbers from the bow of the boat.

The features of Coast Guard documentation that are attractive to marine lenders will also benefit a boat owner. The comprehensive title history will allow a boat owner to sell a boat, and a buyer to buy a boat, with an added degree of confidence regarding the lien and ownership history of the boat. The fee for initial documentation is $133, and there is no fee for annual renewal.

The complexity of the title and lien recording process for a boat may be best appreciated when it is compared to a real estate transaction. Title to real property is always recorded in the county where the property is located. The ownership and recorded lien history may be determined with a high degree of accuracy by examining the records maintained by the County Recorder’s office.

A boat, on the other hand, may be titled and registered in any state or country, and the procedures for transferring between those jurisdictions may be subject to error and fraud. Federal documentation through the Coast Guard will not always identify or resolve preexisting problems, but it does offer a very high degree of confidence once the boat is in the system.

For more information, visit the Coast Guard’s National Vessel Documentation Center online at uscg.mil.