Boat Escrow Closing Settlement
All you should know about boat escrows, closings, and settlements.
In an industry where the value of a boat or yacht often exceeds that of a home, you would expect to find an abundance of qualified marine escrow, closing, and settlement professionals. This is not the case however, and for good reason. There is a great deal of mystique associated with boat titling, vessel documentation, and maritime transactions. Commercial escrow agents are therefore unwilling to swim in such waters. This summary presents an overview of what boat escrow closing settlements are all about, why there is an absence of such resources, and the various alternatives. You will also gain insight into the aspects of maritime transactions as they relate to vessel purchase and sale arrangements.
Escrow Defined - An escrow is the overall process by which a third party agent implements an exchange of considerations between the buyer and seller. According to generally accepted principles, such transaction will consist of three basic elements. The parties must have a clear intent of entering into an escrow arrangement, it must be based upon a written purchase agreement, and irrevocable control of the considerations must be handed over to the escrow agent.
Marine Escrows - In the marine industry, the term "escrow" may take on a different meaning when it comes to boat transactions. Instead you will encounter "closings" and "settlements" which are variants of a true escrow. Although often referred to as "escrows" these do not afford the same amenities and protections as you will find in the traditional sense.
Clearing Titles - The primary reason that regular escrow companies will not handle boat transactions relates to a matter of title clearance. As you may have already discovered, boat titling is complicated and maritime rules are somewhat convoluted with respect to mortgages or liens. This makes it difficult for anyone other than a boat titling expert to determine whether the seller's considerations are fully negotiable.
Title Insurance - Another reason that escrow companies avoid boat transactions is because title insurance for vessels is no longer available. Valiant efforts have been made to market such products in the past, but all have ultimately failed. This leaves buyers with a singular option of having to rely on the seller's wherewithal to make good on any representations of title condition.
Escrow Agents - Given the absence of traditional resources, boat escrows are typically implemented through yacht brokers, marine lenders, documentation companies, and attorneys. Buyers and sellers should be aware however, that certain limitations and shortcomings may exist in all of these circumstances. Marine escrows are not subject to the same standards and oversight as practiced in real estate. Licensing, bonding, and financial requirements are either non-existent or lacking in many cases.
Yacht Brokers - Consider the role of yacht brokers as marine settlement, closing, or escrow agents. With no viable alternatives, they have been historically compelled to perform such duties themselves. Although sincere in their efforts, brokers are sales oriented and their actions may be overshadowed by a much needed commission. This sets the stage for potential conflicts with respect to management of the buyer's and seller's diverse interests. Such condition is illuminated by the fact that regulatory oversight of yacht brokerage activities is very minimal in many jurisdictions.
Marine Lenders - Marine lenders, like yacht brokers, must often act in the capacity of an escrow agent in order to close boat loan transactions. This is more often the case with small watercraft which are dealt with in the same manner as vehicles. Although financial institutions are certainly more qualified to handle escrows, they are not generally knowledgeable about boat titling issues. A borrower can however, take comfort in the fact that the lender typically has more to lose in an escrow gone bad than anyone else.
Documentation Agents - There are a growing number of vessel documentation companies that now offer boat escrow, closing, and settlement services. This has come about a result of increased demand from yacht brokers and marine lenders who wish to divest themselves of such responsibilities. Although most documentation agents are well versed in boat title issues, they may not be qualified to administer closings. There are no bonding or fiduciary requirements whatsoever for independent boat closing agents and very little by way of governmental oversight. Anyone using such service does so at their own risk and would be well advised to perform an exhaustive background check before entering into such an arrangement.
Attorneys - Engaging an attorney to act as the escrow agent would seem like a logical conclusion, given the aforementioned issues. However, it is very difficult for attorneys to remain neutral while representing the diverse interests of both the buyer and seller. Many non-maritime attorneys are also unfamiliar with matters of boat titling, encumbrances, and marine liens. This is accordingly an area that is not pursued by most law firms.
Handling of Funds - Boat escrow agents will typically deposit a buyer's purchase funds into their trust account or perhaps a general operating account. In either event, they are usually commingled with funds from other transactions. This could be a risky proposition in an industry where bonding and financial oversight is minimal at best. As a safer alternative, some buyers will provide the escrow agent with bank checks made payable directly to the appropriate parties. The agent can then simply distribute such items at the time of closing.
Buyer to Seller - There is, of course, always the option of a face-to-face exchange directly between the buyer and seller. In this scenario, the seller hands over all title documents and releases upon receipt of a bank check from the buyer. However, this becomes cumbersome where the parties reside at different locations or a portion of the funds must go to a lien holder. In buyer to seller direct transactions, a boat titling expert can at least lay the groundwork by conducting the title research and preparing transfer documents.
Choices and Options - As you can see, the choices are limited when it comes to boat escrows, closings, and settlements. In any event, there are varying degrees of risk associated with such practices depending on the type of agent. Choosing the best option is therefore vital to the interests of all parties to a boat purchase and sale transaction. It is extremely important to check the credentials and background of any marine escrow agent before handing over large amounts of funds. You may not have a safety net should they convert or mishandle your deposits.