What Do Boat Buyers Need to Know About a Coast Guard Abstract of Title?
Many people view an abstract as a vessel title history, but this is not exactly correct — for a number of reasons. First, it lists only materials that were accepted for recording by the Coast Guard during the time that the vessel was Coast Guard-documented. As such, there may be lengthy periods of time that are not accounted for, if the boat was ever registered in a state (such as through the California Department of Motor Vehicles) or in another country.
More important, as discussed in this column many times, the recording of a lien with the Coast Guard is optional. As such, a valid lien may not be listed on the abstract, and a claim that is listed may not be a valid lien. The instrument is therefore referred to as a Notice of Claim of Lien (rather than an actual “lien”), and the recording of the instrument has no legal effect other than to notify the world that someone claims to have a lien. We should note that this treatment is different for a mortgage, which, in fact, must be recorded to be valid.
In view of the foregoing, an abstract is not a definitive “title history” for a vessel. Nonetheless, a wide range of information is listed on an abstract, and that information is used by different people for different purposes.
The document starts by identifying the vessel by name, Coast Guard official number and hull identification number, together with a discussion of where, when and by whom the vessel was built. This information, by itself, is helpful.
A prospective buyer should be sure to compare the hull I.D. number and the official number on the abstract with the numbers that are permanently marked on the boat, and confirm that the numbers match. Any discrepancy may be evidence of a simple typo, or it could be evidence of a fraud or a crime. It should, in any case, lead to further inquiry.
It is not uncommon for some of the identifying information to be missing, particularly if the boat was initially registered with a state or a foreign country. However, missing information may sometimes be an indicator of a problem.
For example, it may be perfectly legal to register a 70-foot motoryacht with the California DMV, but this would nonetheless be pretty unusual, since most large yachts in this country are Coast Guard-documented. Since the abstract of title would have no information for the period that the boat was DMV-registered, a prospective buyer may want to ask a few questions to evaluate the purpose of the boat’s DMV registration.
After the identifying information, the abstract lists a series of documents in chronological order. Most users of an abstract are concerned with three principal documents: a Bill of Sale (to evidence a transfer of ownership), a Notice of Claim of Lien and a Preferred Ship Mortgage. It also lists a Satisfaction of Mortgage and a Satisfaction of Claim of Lien, which are used to cancel the original mortgage or lien, as well as various lesser-used documents, such as for the recording of a court order or for Coast Guard administrative purposes.
When lenders review a Coast Guard Abstract of Title, they will start from the top and confirm that the transfers of ownership accurately track the history from seller to buyer. They will also confirm that every prior mortgage is followed by a satisfaction of mortgage, and that every Claim of Lien is followed by a Satisfaction of Claim of Lien. They understand that the lien information may not be conclusive, but on the other hand, an outstanding claim of lien is a problem whether or not it is legitimate.
Most people who review an Abstract of Title will stop when they confirm that the liens and mortgages all appear to be satisfied. But the abstract offers more information, if we look just a little deeper.
We already discussed the importance of time gaps in the chronological history and missing or incorrect vessel identification information, but information that is otherwise correct may be helpful as well. For example, a large Claim of Lien may appear to have been satisfied, but what if the claim was made by a salvage company? This would tell us that the boat suffered a catastrophic loss at some time that may not have been otherwise disclosed.
The identity of the owner may also be important. If the first transaction recorded on the abstract is a transfer to a new boat dealer, but the first sale to a consumer was a few years later, the boat may have been used by that dealer as a demo, and the new boat warranties may have been extended by the demo period.
Or, the identity of a previous owner may provide some insight as to a prior use of the boat. If we know that a boat was owned by a hazardous materials response company, our marine surveyor may know to look for some hidden scars that would not otherwise be apparent.
The thing to take away from this discussion is that a Coast Guard Abstract of Title is a possible treasure trove of information. Buyers should ask their broker or lender for a copy, and then review it carefully for anomalies, even if they are assured that there are no outstanding liens.