Our building materials company is supplying a substantial amount of material for the renovation of a historic vessel, and the primary contractor has asked us to open a line of credit for him. We are very experienced with these type of jobs on real estate projects but it is our first project involving a boat. As security for the extension of credit, we want to protect our ability to lien the vessel if the contractor fails to pay. What steps do we need to take to ensure our future lien rights?
Maritime liens are a source of confusion for boat owners and lenders alike, and as such we have spent a lot of time in this column over the years talking about maritime liens. Our reader presented an interesting question because it provides an opportunity to compare maritime liens to construction liens.
A lien is a financial tool that provides security for a debt. The debt often arises from work performed on some type of property, but it may be related to almost any obligation (many of our readers, for example, may be familiar with IRS liens).
A lien – any lien – may be understood by asking two fundamental questions: How is the lien perfected, and how is the lien enforced? The “perfecting” of a lien is the process of converting a claim for an unpaid obligation into a legal right against a piece of property. The “enforcement” of a lien is the process of converting that legal right against a piece of property into a payment to satisfy the obligation.
A contractor who provides labor and materials for a building in California must follow a clear set of rules to perfect and enforce a lien against that building. Pursuant to California Civil Code sec. 3143 and 3144, the contractor must first record a Notice of Claim of Lien with the County Recorder’s office, and then he must file a lawsuit to enforce the lien within 90 days after the lien is recorded. The procedure is clear and unambiguous, but there is no similar procedure for maritime liens.
A famous legal scholar once wrote, when comparing maritime liens to other types of liens, that “a lien is a lien is a lien, but a maritime lien is not.” His point was that you should disregard most of what you know about liens when you enter the world of maritime liens.
Let’s start with the lien recording process. As noted above, a lien must be recorded for a real estate construction project prior to the enforcement of the lien through the filing of a lawsuit within 90 days after the lien is recorded. Conversely, there is no recording requirement for maritime liens and there is no time limit that ties lien recording to the filing of a lawsuit.
A Notice of Claim of Lien may be recorded against a vessel’s title by filing the appropriate paperwork with the US Coast Guard’s National Vessel Documentation Center (“NVDC”). But the recording of a lien against a boat is optional. Recording has no effect on the validity of the lien or the underlying claim, and recording is not necessary prior to taking steps to enforce the lien.
A claimant does not “lien the vessel.” A maritime lien is instantly perfected without recording it anywhere, assuming that the services were provided at the request of the owner or owner’s representative, and assuming that the nature of the services will give rise to a maritime lien (the services must basically provide some kind of benefit to the vessel).
Recording a Notice of Claim of Lien with the NVDC has no legal effect on the rights of the claimant or on the rights of the vessel owner. Recording the claim only (1) clouds the title, which may encourage payment by the vessel owner if the vessel is ever listed or offered for sale; and (2) Notifies the vessel owner and the rest of the world that you might have a lien. I say “might” have a lien, because the NVDC will accept virtually anything for recording, so long as the claim includes a notarized signature and a statement under penalty of perjury that the claim is being submitted for recording in good faith. The NVDC makes no determination regarding the validity of the claim. The validity must be tested in court.
Speaking of going to court, let’s take a look at the enforcement process. As noted, the claim does not need to be recorded. Whether you opt to record or not, the procedure for enforcement is the same. A lawsuit is filed in Federal Court, seeking damages for breach of contract and a warrant for the “civil arrest” of the vessel. Assuming the warrant is issued and the boat is seized by the United States Marshals, and custody is then transferred to a commercial custodian until the vessel is either sold at auction or released under a bond. The lawsuit then proceeds along the lines of any breach of contract lawsuit.
This is essentially a sneak attack – no notice is required to the vessel owner and the vessel is typically seized by the Marshals before the vessel owner is served with the Complaint.
We should point out in closing that this is a very expensive process. Legal fees, court costs, and related custodial costs for the vessel may easily exceed $40,000.00 for the uncontested foreclosure of a maritime lien on a medium-sized yacht. The costs will increase significantly if the claim is contested.
I often close this column with a note that readers should discuss these issues with a qualified maritime attorney for information specific to their case. This is especially true when dealing with maritime liens. This is a very specialized area 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 (www.weilmaritime.com) in Seal Beach. He is certified as a Specialist in Admiralty and Maritime Law by the State Bar of California Board of Legal Specialization and a “Proctor in Admiralty” Member of the Maritime Law Association of the United States, an adjunct professor of Admiralty Law, and former legal counsel to the California Yacht Brokers Association. If you have a maritime law question for Weil, he can be contacted at 562-799-5508, through his website at www.weilmaritime.com, or via email at email@example.com.