How to proceed with a lien sale

Posted: April 27, 2014  |  By: David Weil, Esq.

I bought a 40 foot motor yacht at a lien sale at a marina in Northern California. The lien sale company provided all the paperwork, including a copy of the published notice of the sale, and the paperwork all appears to be in order. The boat was documented with the Coast Guard and when I contacted them to transfer the documentation into my name I was advised that an unsatisfied mortgage to a bank was still on the title and as such title could not be transferred into my name. I sent all the lien sale paperwork to the Coast Guard but they said the sale was not properly conducted. Is this true? If so, what are my legal options?
Procedures for the enforcement or foreclosure of a vessel lien or mortgage vary considerably depending on whether the boat is state-registered or documented with the U.S. Coast Guard.  Unfortunately it sounds like our reader bought a documented boat through a lien sale conducted under the rules for state-registered boats.            

Lien sales for California registered boats (“CF” boats) are conducted under the California Boaters Lien Law, which is set forth in the Harbors and Navigation Code, beginning at section  500.  Pursuant to section 503, the process starts when a lien claimant submits an application to the Department of Motor Vehicles for authorization to conduct a lien sale.  The procedures also require a lien claimant to have possession of the boat to conduct a lien sale, so as a practical matter most lien sales involving CF boats are initiated by marinas to collect unpaid slip rent.            

Upon receipt of authorization from the DMV, the claimant must publish various public notices to advertise the sale and he or she must directly contact anyone who may have an interest in the vessel, including the registered owner and the lender.  Those parties may file an opposition to the sale if they have a legitimate defense to the claim, which may delay the sale until a judge has an opportunity to sort things out.            

Assuming the sale is authorized and all the notices are sent and no opposition is filed, the sale will go forward as advertised and the lien claimant may recover the amount of the claim from the sale proceeds.  Any remaining funds from the sale are sent to the DMV, where a lender or other parties with an interest in the sale proceeds may submit a claim for reimbursement.            

Lien sale procedures for CF registered boats are fairly straightforward, but the Boaters Lien Law specifically excludes “any vessel which has a valid marine document issued by the United States.”  A lien claim against a Coast Guard documented vessel is enforced under federal maritime law, and the procedure usually requires the claimant to file a lawsuit in federal court which calls for the vessel to be seized by U.S. Marshals and transferred to a commercial custodian for the duration of the lawsuit.            

A federal lien foreclosure is a very expensive procedure but it is very efficient.  The boat is taken into custody by armed federal law enforcement officers, it is ultimately sold through a marshal’s auction, and the entire procedure is overseen by a federal judge.  The procedure differs substantially from the DMV procedure described above, but there is one particular difference that brings us back to our reader’s case.  Only a federal judge, in the exercise of the court’s federal admiralty jurisdiction, may sell a documented vessel free and clear of all liens.                  

Our reader indicated that he bought the boat at a lien sale conducted by a lien sale company, but that the Coast Guard would not transfer title to him with an unsatisfied mortgage recorded against the vessel’s title.  A properly recorded mortgage will remain as a claim against the vessel until a satisfaction of mortgage is recorded by the lender or a federal judge enters an order to clear it from the title.            

Our reader therefore purchased a boat with a big problem.  His legal options at this point will start with a demand to the lien sale company and the marina to unwind the sale because the sale was not properly conducted.  The DMV will not issue a lien sale authorization for a boat with a current Coast Guard document.  They will authorize a sale for a boat with expired documentation, but in those cases the lien claimant must first obtain written confirmation from the Coast Guard that the boat has been “removed from documentation,” and the Coast Guard will not provide that confirmation for a boat with an unsatisfied mortgage recorded against the title, even of the boat’s documentation has expired.            

Lien sales may be attractive for prospective buyers because of the potential for a bargain purchase.  But sometimes you get what you pay for.  Consult a maritime attorney experienced in lien foreclosure before submitting a purchase offer if you are concerned about a particular lien sale.  

David Weil is licensed to practice law in the state of California and, as such, some of the information provided in this column may not be applicable in a jurisdiction outside of California. Please note also that no two legal situations are alike, and it is impossible to provide accurate legal advice without knowing all the facts of a particular situation. Therefore, the information provided in this column should not be regarded as individual legal advice, and readers should not act upon this information without seeking the opinion of an attorney in their home state.  

David Weil is the managing attorney at Weil & Associates (weilmaritime.com) in Long Beach. He is an adjunct professor of Admiralty Law at Loyola University Law School, is a member of the Maritime Law Association of the United States and is former legal counsel to the California Yacht Brokers Association. He is also one of a small group of attorneys to be certified as an Admiralty and Maritime Law Specialist by the State Bar of California. If you have a maritime law question for Weil, he can be contacted at (562) 438-8149 or at dweil@weilmaritime.com.
 

Ask your question online at thelog.com.

Click Here To Ask Your Question

captcha 77cc339917f548279aa61892ac9aff29
 

Free Digital Guide to Pacific Coast Marinas