Maritime Liens and Mortgages
Copyright © 2005 Weil & Associates and David
The cornerstone of a claim against a vessel owner is
the maritime lien. A maritime lien is quite different
from its familiar land-locked equivalent, and as pointed
out by a leading admiralty law treatise, "The beginning
of wisdom in the law of maritime liens is that maritime
liens and land liens have little in common. A lien is
a lien is a lien, but a maritime lien is not."
Maritime liens may be as troublesome to attorneys as
they are to boat owners and creditors, so it is important
to retain an attorney with experience in enforcing and
defending maritime liens and mortgages. The formation,
recording, priority, and enforcement of these liens are
quite different than for liens that arise under the U.C.C.
or other state law.
The characterization of a claim against a vessel as
a "maritime lien" is critical to the creditor's
claim. The priority of any claim against the vessel is
an important consideration, since at the time of foreclosure
the value of the claims may exceed the value of the vessel.
Maritime liens have a unique set of priority rules that
are used when comparing one lien to another, but in any
case, all maritime liens have priority over all non-maritime
liens. Characterization of a claim as a maritime lien
also allows a creditor to use a special foreclosure process,
where a Federal Judge issues an Order which directs a
Federal Marshal to seize the vessel, without a hearing and
before judgment. This "surprise attack" on
the vessel allows a creditor to secure its claim before
the boat escapes foreclosure by sailing away.
The Federal Court foreclosure is a valuable tool, but
it is not without its risks. One risk is that the creditor
and the creditor's attorneys may both face severe sanctions
by proceeding with such a foreclosure if the claim is
not a valid maritime lien. Many claims which may appear
to be maritime liens do not actually qualify for that
status. For example, services rendered to a new boat
prior to its initial launch do not give rise to a maritime
lien, while the exact same service rendered after the
launch may qualify. Similarly, the breach of a contract
for the purchase of a vessel does not give rise to a
maritime lien, regardless of whether the contract is
for the sale of a new boat or a used boat.
Another risk of a Federal Court foreclosure concerns
the cost of the project. An unopposed federal
court foreclosure of a small yacht or workboat may easily
cost $20,000 or more, and this number will grow substantially
if the vessel owner or competing creditors step in to
the process. Notably, under certain circumstances the
creditor may proceed with a "private foreclosure," using
a "repo agent" and bypassing the court system
entirely. The course for any creditor will depend on
many things, including the language of any written contract
that may have been used, but this will vary on a case-by-case
basis and there is no simple rule to apply.
Maritime liens may also be troublesome to vessel buyers.
The lien may be a "secret lien," because recording
of most maritime liens is optional. Unlike secured
transactions subject to the U.C.C., there is no recording
or possession requirement for perfection of most maritime
liens. Considering that a maritime lien may give rise
to arrest of the vessel without warning to the owner
or other creditors, this rule may appear particularly
harsh. Further, a valid maritime lien is good against
all the world, including a good faith purchaser without
notice of the lien's existence. As such, a lien may be
enforced against the new owner of a boat who had absolutely
no idea that the lien may have existed. And, compounding
all of this confusion is the fact that the Coast Guard
takes no responsibility for determining whether a lien
is valid, even if the creditor does take advantage of
the recording system. The creditor simply fills out a
form, signs it under penalty of perjury, and sends it
in to the Coast Guard. The lien may, or may not, be a
valid maritime lien.
The conclusion to this discussion is fairly clear.
When vessel owners, buyers, sellers, brokers, or creditors
are confronted by questions involving possible maritime
liens, a qualified maritime attorney should be consulted.
Weil & Associates has worked with maritime lien issues
for many years, and the firm has been involved with countless
vessel foreclosures. We understand the mechanics of these
claims and are frequently able to advise clients of their
best course of action during our initial consultation.