As noted in this column in the August 25 issue (’A Lesson on Liens’), the recording of a maritime lien with the Coast Guard is optional, and a valid claim may exist against the boat even when the title history appears to be free of liens. An unrecorded lien may be troublesome, but that problem is insignificant when compared to a boat with two titles.
Unlike real property, where all transactions for a particular property will be recorded in the county where it is located, a boat may be registered anywhere on the planet. She may be registered in any state, even if she has never been there, she may be registered (documented) with the Coast Guard or she can be registered with a foreign country. Some states (such as New York) require a boat to be state-registered even if she is also Coast Guard documented. Some states (such as Delaware) do not use the registration process to provide a legal ’title’ to the boat.
The registration for a particular boat may transfer from state to state, or it may transfer between state registration and Coast Guard documentation. California law requires a Coast Guard-documented vessel to be removed from documentation before she is registered with the Department of Motor Vehicles as a ’CF’ boat. Unfortunately, DMV clerks sometimes overlook this requirement, and they may issue a California ’pink slip’ for a boat that is still documented with the Coast Guard. Whether by mistake or by fraud, the pink slip may then be submitted to the Coast Guard for the issuance of a second Certificate of Documentation, even though the first document is still valid.
This complicated titling and registration system may lead to very serious problems for a buyer. A boat with two ’live’ titles may have a valid mortgage recorded under one title, which would not appear on the other title. Or the boat may be sold to two different buyers. In either case, a perfectly innocent buyer may actually lose title to the boat.
A diligent buyer may take steps to avoid these problems, starting with a careful review of the Coast Guard Abstract of Title. A boat that was documented when she was sold to the first owner, with an unambiguous and uninterrupted chain to the current owner, is less likely to have a problem than a boat that was state-registered for part of her life. Physical inspection of the boat is also important. Compare the Hull Identification Number stamped on the boat’s transom to the number recorded in the Coast Guard records. Compare the Coast Guard Official Number marked on the boat to the number on the Certificate of Documentation. Federal law requires the Official Number to be permanently affixed to the vessel, so that alteration, removal or replacement would be obvious.
Marine title insurance is a relatively new product that is not yet a standard feature in yachting transactions. It would, however, provide coverage for the problems discussed in this article, and it I expect that it will gain broad acceptance in the future.