Beware of Secret Liens when Buying or Selling

When a vessel sells, there are significant TITLE ISSUES for both Buyers and Sellers which may not be readily apparent. Advice from a knowledgeable attorney and documentation service benefits Buyers and Sellers concerned with clear title and indemnity for title. New vessels and previously owned vessels each have their own process for transfer of title and potential pitfalls. This is when you’ll new cruise lawyers

When it comes to the title of your vessel, any new purchase should come with a Bill of Sale and a Manufacturer’s Certificate of Origin (also known as an “MSO”). These documents will allow the owner to register the vessel in the state of his or her choice and/or with the United States Coast Guard or a foreign registry.

When buying a used vessel, the Buyer should also receive a Bill of Sale. Sellers should be aware of the fact that their signature on the Bills of Sale generally will put the Seller in a position of indemnifying the Buyer for any claim against the title should a claim arise.

So, what types of claims can come up? The Cruise Lawyers at Irwin Law Firm have your answer. Maritime Liens are a creation of US Federal Law, and may also fall under State Law. Individuals and companies that provide “necessaries” to a vessel may claim a Maritime Lien without any filing or notice whatsoever. Thus the liens are “secret” until such time as the lien holder decides to take action against the vessel.

And since the lien is against the vessel (known as an in rem claim against property) and not the owner at any given time, the lien follows the vessel. Therefore a recent Buyer might find his or her new vessel saddled with a valid and enforceable lien they did not know existed, and for goods or services they did not purchase.

How can Buyers and Seller know about the claims, should they arise? An abstract of title can be requested for U.S. documented boats, which should show any mortgages or other liens against the vessel. But, be aware that under both federal law (U.S.C. Title 46 § 31343, the “Maritime Lien Act”) and Florida law (Fla. Stat. § 713.60) secret liens may exist which may give rise to future claims against vessels. These are generally liens in favor of persons or companies that provide necessary maintenance or services to a vessel.

A lien may not be known about or no claim may be made at the time the yacht is sold. To protect against future claims against the vessel, the Buyer should insist on a title warranty from the Seller stating that the vessel is being sold free and clear of any and all mortgages, liens or encumbrances against the vessel. This is in addition to the warranty of title generally stated in the Bill of Sale. With proper preparation you will have the Seller in a position to indemnify the Buyer should a claim arise. Also, Buyers should consider title insurance, which is fairly new to the market, but includes coverage for legal fees in defending title.

As a crew member, knowledge of the recent whereabouts and happenings surrounding a yacht which the Buyer is considering for purchase can be a significant benefit. Issues of whether the current dock bill, recent engine work or a paint job has been paid may be invaluable to a purchaser about to take possession. Due diligence may come in the form of assuring that bills have been paid by the party who incurred those bills prior to the transfer of ownership.

By taking the above precautions, you can help ensure that an owner’s dream of a yachting lifestyle does not turn into a sinking nightmare. At Irwin Law Firm we have the cruise lawyers to ensure you are sailing free!

David E. Irwin is a Florida attorney with Irwin Law Firm. He practices admiralty and maritime law with an emphasis on transactions, litigation and contracts. His office is in downtown Fort Lauderdale, and he can be reached at (954) 775-2301 or by e-mail at david@irwinlegal.com.