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Boat Transactions Advisor
Answers to frequently asked questions about boat transactions.

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GENERAL INFORMATION

What are my options for recording a boat lien?

Your options for recording a boat lien are somewhat limited depending on how the boat is registered or titled. On non-documented boats, you would need the owner's written consent to record a lien or security interest on state registration records. In this case, the title and/or registration certificate would need to be surrendered and re-issued. It may be possible to implement a Uniform Commercial Code filing unilaterally, but this venue is intended for financing interests such as boat loans. If the vessel is Coast Guard documented, you can file a "notice of claim of lien" without the owners consent. However, this type of recording does not particularly validate your claim. Financing interests on documented boats should be recorded via a preferred vessel mortgage.

How do I foreclose on a boat lien?

On non-documented boats, you may have the option of conducting a summary or non-judicial foreclosure by following certain procedures as set forth under state laws. In states which do not accommodate such actions, it will become a matter of going through the appropriate court of law. On Coast Guard documented boats, liens or claims other than preferred mortgages will likely have to be handled through a federal court and then sold by the U.S. Marshals Service. In any event, you should consult with an attorney when enforcing any type of boat lien as you may become liable if not implemented properly.

How important are notarizations on boat transaction forms?

 In today's busy environment, signature acknowledgements are often viewed as stumbling blocks in getting through a myriad of paperwork that often accompanies vessel transactions. This is especially evident when forms are transmitted long distance for execution in remote areas where public notaries are less than accessible. A valid acknowledgement is however, one of the most critical elements of any document when it comes to protecting the interests of a vessel buyer, seller, or lender.
          Because the acknowledgement is so important, notary standards must be taken very seriously. If not, there can be repercussions for both the notary and the party that may suffer damages. Although public notaries are regulated by state law, their requirements are for the most part uniform throughout the country. In general, the notary must witness a personal appearance by the signer, obtain sufficient identification, and determine that a signer has the capacity to understand the document while exercising free will in its execution. Notaries are also bound by common ethical considerations in performing their duties.         
          Whether the transaction is a complex vessel purchase arrangement or a simple refinance, timing is usually one of the primary concerns. Seasoned professionals such as sales agents and finance officers will accordingly structure their deadlines to cover the inevitable possibility that remotely executed documents will contain defective acknowledgements. They also understand that an expedient quick-fix which violates notary standards can turn into a major issue should the underlying transaction ever become contested.

How should a boat be identified in court actions?

Governmental recording agencies will not typically accept court directives unless the subject boat is sufficiently identified. Year, make, model, length, boat names, and hailing port designations are helpful with respect to clarification, but these will not by themselves qualify as unique descriptions. The manufacturer's hull number, official documentation number, and state registration number should all be included as applicable. The Coast Guard will always recognize its assigned official number as they consider this a vessel's primary identifier. A manufacturer's hull identification number may suffice, but only if a cross reference is shown on their records. Such nexus is less likely for state registration numbers. As for state registration agencies, they will accept a manufacturer's hull identification number and perhaps the state registration number if still shown on their records. An official number for state level recordings may be acceptable, but only when supported by an abstract of title from the Coast Guard. In any event, all known boat identification numbers should be included whenever possible just to cover all bases.

Should I consult with a regular or maritime attorney about my boat transaction?

It all depends on the kind of transaction your are considering and the situation at hand. In dealing with state level issues on a smaller boats, a regular attorney may be quite sufficient. On Coast Guard documented vessels or those which will be used in commercial operations, a maritime attorney would likely be your better choice. In any event, you should ask a prospective attorney whether he or she is qualified in your particular area of interest. If not, you can request a recommendation or check the marine attorney listings on our Resources page.

When must I discharge a boat loan or lien recording?

With respect to vessel liens and encumbrances, it is natural to think only in terms of an owners indebtedness to a lien-holder. However, in the event of a settlement, the lien-holder actually incurs a converse obligation to the debtor in the same amount as the original debt. In order to fulfill this obligation, the lien-holder must offset any recorded claims it may have filed against the vessel. Furthermore, there are certain state and federal regulations that require lien-holders to implement this in a timely manner. In fact, the holder of a preferred marine mortgage on a documented vessel can incur substantial civil penalties for not recording a discharge upon payment.
          There are also some practical reasons for getting releases of interest issued promptly. A good case in point pertains to debt settlements that arise in conjunction with  vessel sales transactions. In these situations, the closing is precipitated upon paying off any underlying liens or encumbrances. On settling these claims, any subsequent titling or documentation recordings can not be completed until the respective releases have been filed. Lien-holders, who fail to do this within a reasonable time, can inflict damages upon the affected parties. This usually results from a buyer's inability to operate or encumber the vessel until proper titling, registration, or documentation can be attained.

Who guarantees a boat or vessel title?

 The words "caveat emptor" represent what is arguably one of the most important concepts you should bear in mind when purchasing a vessel. This Latin phrase, which means "let the buyer beware", is further defined in legal terms as "an axiom or principle in commerce that the buyer alone is responsible for assessing the quality of a purchase before buying". In the marine industry, this is true not only as it pertains to a vessels condition, but also as it relates to the quality its title.
          Boat title insurance is not available in the marine industry and it is unlikely that a broker, titling agent, attorney, or any other party would be willing to offer such assurance. This means that buyers must generally rely on the sellers representation regarding the boat's title or lien status. Accordingly, the buyer becomes subject to the sellers good faith in rectifying any title deficiencies that may be encountered subsequent to the closing.
         As an offset to these conditions, you should be diligent in gathering as much information as possible about the seller. This way you will know where to turn in the unlikely event there are some hidden liens or title deficiencies which may become evident after the closing. On or before closing, the seller should also be required to execute an explicit title warranty statement regarding any existing liens, encumbrances, or adverse title conditions. An additional precautionary measure would be to hold back a reserve from the purchase funds to deal with any such contingencies. You should of course seek the assistance of an attorney in structuring any mechanisms by which the seller can be held accountable.
          It is also prudent to investigate the title's condition as opposed to simply relying on the seller's representations. There are various methods of doing this depending on whether the vessel is documented with the Coast Guard, state titled, or foreign registered. Information, guidelines, and resources for researching vessel titles on the federal, state, and foreign levels is available from our web site.

What should I get when my boat loan is paid off?

 If the boat has been mortgaged under Coast Guard documentation, your lender must implement a satisfaction or release of mortgage recording on the boat's abstract of title. In this case, you should require the bank to furnish a copy of the instrument showing the recording information. If it is state titled, the bank will typically send you the title certificate showing their release. In some paperless title states, they will need to handle this directly through the registration agency. In a non-title state, the bank would have typically filed a Uniform Commercial Code (UCC) recording to secure their interest. You should then insist on evidence that a termination statement was filed. In any event, you should require proof that the appropriate title or mortgage releases were implemented as it may be extremely difficult later on when the lender has moved, merged with another institution, or gone out of business.

BOAT BUYERS

Can I trade my boat on paper for a tax reduction?

 Some states will allow a reduction in sales or use tax on the purchase of a boat for the value of a trade-in. This has created a scenario where buyers who are transferring their existing boat directly to a third party may ask the seller to simply facilitate it as a trade. Such transaction is then evidenced only by bills of sale and the buyer maintains possession of the trade pending delivery to the third party. The respective state could however disallow such deduction if not viewed as a bona fide trade. This is especially true where it is not structured into the Purchase Agreement or the seller is insulated from any financial risk on the subsequent sale. A facilitating seller could also inherit certain liabilities when stepping into the chain of ownership, even if it is only on paper. The ultimate buyer of the trade could furthermore relinquish any direct recourse to the actual seller under these circumstances. All  parties to a paper trade should seek legal advice if concerned about any of these ramifications.

Is boat title insurance available for my purchase?

Boat title insurance for vessel purchase transactions is not currently available within the marine industry. Attempts have been made in the past by various title insurance companies to offer this much needed service, but they have all withdrawn from the market place. This means that buyers must basically rely on the seller for any title guarantees or warranties. You should therefore take all possible measures to ensure that the seller can and will stand behind any representations of a clear title.

Is it safe to hand over my purchase money before getting a title?

It is very difficult to re-title or register any boat without the previous title certificate or proper ownership releases. If the state where you are registering does not offer bonded or conditional titles and registrations, it will likely be a matter of obtaining an award of ownership from the appropriate court. You should therefore never close on a purchase transaction without at least knowing the condition and whereabouts of the boat's title.
          In order to obtain the appropriate certificates and releases of ownership, you will first need to know how the boat was previously titled or registered. This will determine the type of certificates, assignments, or transfer instruments you will need. These can vary considerably depending on whether the boat was Coast Guard documented, state titled, registered only, foreign registered, or a combination thereof. Each boat registration agency has their own rules and policies when it comes to evidence or proof of ownership requirements. It would be worthwhile to seek the assistance of a boat titling professional If you are unsure about any of these factors.

What are the implications of placing my boat in a charter or timeshare program?

Time share and bareboat charter programs remain quite popular with vessel owners, even though some of the earlier IRS tax advantages have vanished. A well managed program can not only help defray the financial burden of ownership, but also qualify the vessel for state level tax reductions in certain jurisdictions. Unfortunately, these advantages are offset by the fact that you may end up sharing your vessel with some less than desirable individuals. In some states, you must also turn over management of the vessel to an independent third party for tax purposes.
          With regard to vessel titling and registration, there are some additional factors to consider. The Coast Guard classifies bareboat charter and timeshare operations as recreational usage, therefore, documentation is not required. However, it is required were the owner or owner's representative will be skippering or operating the vessel. Documentation is also necessary in certain states before the vessel can become eligible for tax relief. In any event, most owners who place vessels into these programs will opt for documentation in order to strengthen the title.

Should my surveyor verify all boat identification numbers?

One of the more important aspects of a surveyor's report pertains to the vessel's description. Although often underrated, this can be as vital to the buyer and marine lender as the vessel's underlying condition. In addition to the exact specifications, any identification numbers that are affixed to the vessel must be clearly stated. Such items all serve to link the vessel itself with those documents which evidence ownership and a lender's security interest.
          Although it represents an additional effort on behalf of the surveyor, it is an excellent practice to incorporate stencils or "rubbings" and photographs of all identification numbers into the survey report. This will help eliminate even the remotest possibility of drafting errors. These are often required anyway whenever conflicts arise over previous deficiencies. Furthermore, the surveyor should always rely on self-observations rather than the existing ship's papers in defining the vessel's specifications. In selecting the right surveyor, a prudent buyer should make sure these services are provided.

What are temporary boat operating or travelling papers?

Boat operating or travelling papers are copies of documents proving that you own the boat. This may include a signed off state boat title, a bill of sale, or other evidence that the title or Coast Guard documentation has been assigned into to your name. In most cases, such papers will also include evidence that you have applied for a new registration, state title, or Coast Guard documentation. These may also be supported by a letter from your title or documentation service agent when applicable. Although such items are not fully legitimate for operating purposes, most law enforcement officials will honor them if they are complete and reasonably current. However, you should always check with the enforcement agency for the area in which you will be operating to confirm whether these will suffice.

BOAT SELLERS

Am I responsible for sales tax as a boat seller?

As the seller, you are not generally responsible for paying taxes related to the sale of your boat. A buyer is typically responsible for any applicable sales, use, or excise taxes. However, you may be required to collect and report sales tax from the buyer if you are a business entity. Be sure to check with the respective revenue collection agency for the state in which the sale will occur to confirm this information.

Should I sell my boat without using a broker?

There are many good reasons for enlisting the services of a yacht broker, especially for sellers who lack the time or inclination to undertake such effort on their own. However, the "for sale by owner" option is becoming easier due to the advent of online shopping via the internet. In fact, most vessel transactions now originate from web listings which are posted by both brokers and private sellers. This has resulted in an enormous market place for boat owners who wish to advertise and sell directly to the boating public.
          Our web site provides numerous services, forms, databases, guidelines, record search tools, and other valuable resources which are designed specifically for direct seller to buyer transactions. You can realize a considerable savings in titling, closing, and brokerage fees by utilizing our complete array of easy to use self-service kits and boat transaction forms.

How do I get a boat lien release from a failed bank?

You can obtain a boat lien release from a failed, closed, or defunct  bank by contacting the Federal Deposit Insurance Corporation (FDIC). They will need information about the boat loan and proof that it was paid off. This would  include a copy of the paid note, copies of payment checks, or anything else that would indicate payment.

How important is reporting the sale or transfer of my boat?

The "report of sale" is an important item often overlooked by boat sellers during the commotion of finalizing a sales transaction. Almost all state and federal titling agencies require some type of written notification when a boat is transferred, stolen, abandoned, or destroyed. Most jurisdictions require the seller to file a "report of sale" form within 10 to 15 days. If the vessel is documented with the U.S. Coast Guard, the owner must notify the National Vessel Documentation Center by filing a written request for removal from documentation.
          A prudent seller should ensure these steps are taken even when relying on a broker or some other party to handle the transfer.  Failure to report the sale could not only involve penalties, but the state or federal agency will presume the seller still owns the boat until it is re-titled by the new owner. A new owner may refrain from recording the transfer of ownership for certain reasons, or may pass on the ownership without ever recording the interim ownership at all. This could prove troublesome if the boat is subsequently involved in some type of entanglement. The burden would then be upon the owner of record to disclaim ownership.

Should I participate in a paper trade on the sale of my boat?

Many states allow a reduction in sales or use tax on a vessel purchase for the value of a trade vessel. This has created a tendency among buyers to request passage of title to their existing vessel through the seller and then on to a third party. In a paper trade situation, the buyer maintains control and possession of the trade pending delivery to the third party. As the seller,  you should should be concerned the implications of stepping into the chain of ownership, even if only from a technical perspective. Having become the seller of the trade,  you could become liable for product or title warranties. This may also create tax obligations depending on the jurisdiction and values of exchange. It may be worthwhile to consult with an attorney or tax expert before making such a commitment.

What kind of funds should I accept on the sale of my boat?

As a general rule, any written instrument such as a check or bank draft can be stopped or dishonored. This applies even to cashier's checks, but these would be more difficult as they are considered a direct obligation of the issuing bank. In this case, payment could unlikely be declined unless there is a condition of fraud, conversion, or theft. Checks drawn on or through foreign banks are especially vulnerable as they may not be subject to the same regulations that protect U.S. consumers. Of course, there is always a matter of insufficient funds in the account on which a check is drawn.
          Wired funds are typically viewed as more secure unless placed into your account by error. When accepting a check or draft of any kind you should first make sure the payer is properly identified. It would then be prudent to contact the bank on which drawn to make sure the account is valid and that it contains sufficient funds. You should also be aware that large amounts of cash must be accounted for when depositing into your bank account.
          In any event, you should consult with your bank representative to determine which type of payment you can be most comfortable with when selling your boat. Your banker can also advise you on the typical amount of time in which certain types of deposits can be reversed. In some cases, especially where large amounts are involved, you may wish to consult with an attorney to determine your best protections.

Must all sellers sign off on boat transfer documents?

In most cases, all of the owners will need to execute a title certificate, certificate of documentation, bill of sale, or other transfer instrument. Some exceptions would include an "or" indication between the owner's names or a survivor of a joint tenancy. Many state titles will also show "and" designations which means that all respective owners must sign. The U.S. Cost Guard does not use these types of qualifiers on documented boats and will usually indicate the individual percentages owned or reveal the full method of ownership. Special rules for releasing interest may also apply to estate situations or trust arrangements. If the subject vessel is owned by a legal or business entity, all transfer documents will need to be signed by an authorized representative. Boat registration or titling agencies may not always require proof of such authority, but you should require this for your own protection. In any event, you may wish to consult with the respective governmental agency or an attorney if you have concerns in this regard.

MARINE LENDERS

How can I secure a boat loan on a floating home?

As a matter of perspective, just about anything afloat with living accommodations could be viewed as a floating home. However, floating homes, house barges, and house boats fall into different categories with respect to the manner in which they are moored, utilized, titled, registered, and taxed.
         Floating homes are building structures that are situated on a platform supported by floatation devices. House barges are similar to floating homes, except they are supported by a rectangular hull. House boats are self-propelled cruising vessels with rectangular cabins situated on displacement type hull structures. Although not designed for self-propulsion, many floating homes and house barges are equipped with outboard motors to avoid city or county residential classifications.
        Coast Guard documentation, state titling, and state registration are generally available for all three categories of such vessels. This is important with respect to financing because it provides the lender with a means of perfecting its loan via a preferred ships mortgage or state level boat recording. If the structure is not titled, it may become classified as a mobile fixture to the wetlands property over which it is moored.

How do I foreclose on a boat loan?

Boat loans are typically foreclosed through actions taken within the courts or performed non-judicially under state regulations. Such options are generally governed by the terms of a financing contract or security agreement and the manner in which the loan was perfected. These choices can also determine whether deficiencies may be pursued for any shortfalls from liquidating the collateral. Caution should also be exercised when using self-help foreclosure methods as you may become liable if not performed in precise accordance with state regulations. In any event, you should seek the guidance of an attorney in determining the best method of foreclosure.

What is the optimal method for securing a boat loan?

 Coast Guard documentation with a preferred mortgage is typically viewed as the optimal security for vessels exceeding twenty five feet in length. However, this may not always be the best answer with regard to realities of the marketplace. Although a preferred mortgage is generally recognized as the best method for perfecting contractual boat liens, it is usually more expensive and cumbersome to deal with than state titling. Accordingly, lenders are often confronted with varying degrees of resistance from borrowers who are usually the ones to bear such burden. This is especially true on smaller vessels where documentation may not otherwise be advantageous.
          The issue of optimal security can not, therefore; always be viewed in precise terms. It may instead come down to a matter of calculated choices based on certain loan conditions. While some lenders have established parameters within which a preferred mortgage is required, others may call for it on every qualified vessel. In order to best resolve this equation, a lender should look carefully at all of the various implications. In doing so, the services of a marine attorney may well be worthwhile.

Where can I find marine, boat, or vessel escrow services?

 You are not likely to find the equivalent of typical real estate escrow services in the marine industry. Boat or vessel escrows are for the most part handled by yacht brokers, commercial lenders, a few documentation companies, and perhaps an attorney who is willing to become involved in such transactions. Other than attorneys and commercial lenders, there is very little by way of bonding, accountability, and governmental oversight with respect to the way marine escrows are handled. Brokers are regulated in some states, but documentation companies are usually not subject to any such constraints. You should accordingly conduct a great deal of investigation before handing large sums of purchase funds over to an independent marine escrow agent.

When should I file a boat Uniform Commercial Code (UCC) financing statement?

 A Uniform Commercial Code ( UCC ) recording is appropriate for perfecting an interest in a boat, trailer, or outboard motor that is neither state titled or Coast Guard documented. However, many lenders elect file UCC statements as a precautionary measure until higher level recordings have been implemented. UCC filings are most common in states that register boats, but do not issue corresponding titles. You should keep in mind that a UCC filing may not be the best long  term protection on boats that can become subsequently documented or titled.

How can I detect existing boat loan security interests?

 In order to become perfected and prioritized, boat loan security interests must be properly recorded. The manner in which this becomes implemented depends on how the boat is registered, documented, or titled. Where to search for loan security interests is therefore based on such circumstances.
          If a vessel is documented with the U.S. Coast Guard, it will be necessary to obtain an abstract of title that corresponds to the respective official documentation number. This will show all mortgages that have ever been recorded against the vessel and any releases or satisfactions which have been filed as evidence of their discharge. Abstracts are sometimes complex and difficult to interpret so you may wish to retain the services of an experienced documentation specialist. An abstract should be inspected even if the vessel is reportedly no longer documented.
           On state titled vessels a lender's secured interest is recorded on the respective title and/or registration records of the issuing state. In most cases, the secured parties will be shown on the title certificate itself. However, this is not always the case and you should never rely on the face value of boat title certificates. The appropriate recording agency should be queried with regard to the certificate's validity and further evidence of any liens or secured interests.
          Certain states do not issue boat titles and offer registrations only which serve as evidence of ownership where the boat is not Coast Guard documented. Lender security interests are not typically recorded on such registration records, but this should always be verified with the respective jurisdiction. Uniform Commercial Code ( UCC ) recordings are the appropriate venue for recording financing interests in non-title states. Such records should be searched under the owners name and address as shown on the registration certificate along with any other known aliases.
          Titling and registration methods are less than consistent due to the various means by which boats can become titled, documented, or registered. Lines of communication among various states and federal agencies with regard to the exchange of boat information are inadequate at best. Tracking ownership and boat loan security interests can therefore become quite challenging.

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