Ask The Attorney

What Consequences Are There in Failing to Record a Bill of Sale?

I sold my boat almost a year ago. I signed and notarized a bill of sale on the official Coast Guard form and exchanged the bill of sale for a cashier’s check when we closed the deal. It came to my attention when I received the annual documentation renewal form from the Coast Guard that the buyer never recorded the bill of sale, and the boat is still in my name. I tried to contact him, but I have been unable to reach him. What kind of liability am I facing by allowing someone to operate a boat that is still registered in my name? How can I get the bill of sale recorded? 
Our reader’s dilemma is not uncommon. In a private party deal that is handled without a broker, the buyer is often given the job of recording the title and registration paperwork. Problems arise when the buyer fails to follow through. This may occur by design if, for example, the buyer is trying to cheat his way out of paying use tax relating to the purchase. Or it may be a simple oversight.            
Like so many other legal questions, the potential lingering liability faced by a seller who remains on the title after the transaction has been completed will depend on the facts of each particular deal. However, broadly speaking, we can say that the mere fact a person remains on a vessel’s title or registration does not by itself make him or her liable for the acts of the new buyer.            

Our reader is concerned that the boat’s new owner will be involved in an accident with the boat and that the injured party will pursue our reader, rather than the new owner. A lawsuit under these circumstances will allege that the defendant was negligent, so we first need to understand what that means.            

A lawsuit for negligence will evaluate whether a person had a duty to act in a particular way toward the injured party, whether a reasonably qualified person in the same situation would have conducted himself or herself in the same manner, and whether a failure to comply with that standard somehow injured or damaged the plaintiff.            

When we apply the negligence standard to the scenario described by our reader, it’s hard to see how an injured party could link his or her injuries to the failure to properly record a transfer of ownership. However, that does not mean our reader is off the hook.
The person named on the boat’s title will almost certainly be drawn into this kind of lawsuit — and it may cost thousands of dollars in legal fees to get out of the case, even if that person cannot ultimately be held liable.            

We should note that the analysis of this hypothetical accident is not based solely on the fact that the registered owner was not aboard at the time of the accident. If, for example, the boat had not been sold but instead had been simply loaned to the person who was operating the boat, the owner may be held liable if a prudent boat owner would not have allowed that particular person to operate the boat. But, in the case of a sale, the previous owner has no right to designate the operator after ownership is transferred to the buyer.            

So, how can our reader protect himself? The answer is fairly simple for boats that are registered through the California Department of Motor Vehicles (DMV), but it’s a little more complicated for Coast Guard-documented vessels.            

For California DMV-registered boats, sellers should prepare and file a “Notice of Transfer and Release of Liability” with the DMV immediately upon the sale of the boat. This form does not transfer title automatically, but it puts the world on notice that the ownership of the boat is in transition.            

The Coast Guard will not record a transfer of ownership until it receives a notarized bill of sale. In our reader’s case, he may want to prepare a new bill of sale form and file it himself.            

Similar to the DMV process, this will not automatically result in the issuance of a new Coast Guard Certificate of Documentation in the name of the buyer, since the buyer needs to file a separate form to apply for the new certificate. But, again, it puts the world on notice that a sale transaction has been initiated.            

The “down side” of this procedure is that the new owner still has a “live” signed and notarized but unrecorded bill of sale in his possession. This may lead to some ambiguity if the new owner finally gets around to recording the document sometime in the future. But, in the end, the buyer doesn’t have much of a choice.            

Finally, there are a few things our reader should have done to protect himself at the time of the sale. His first mistake, of course, was to sell the boat without the advice of a broker or attorney.            

We are often asked whether a broker is worth the cost of the sales commission, particularly when the boat owner is confident that he or she can find a buyer without advertising the boat. The answer is almost always “yes.”            

A boat purchase involves two parties with different priorities and different personal agendas. The advice and oversight provided by a reputable broker can prevent scenarios like the one described by our reader.            

If he was determined to proceed without a broker and unwilling to hire an attorney, he should have considered retaining a vessel documentation service to handle all of the paperwork. These companies act as neutral intermediaries in a transaction, and they are extremely experienced in the documentation associated with a wide range of vessel purchase and sale transactions.

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