Maritime Liens and Mortgages

Copyright © 2005 Weil & Associates and David Weil, Esq.

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.