Posted: December 19, 2012 | By: David Weil, Esq.
The title problem described by our reader is more common than people realize. Vessel title issues can develop as a consequence of the title recording system used for recreational vessels in the United States. Unlike real property, where all of the transactions for a particular property are recorded in the county where the property is located, a boat may be registered anywhere on the planet. It may be registered in any state, even if it has never been to that state, or it may be registered (documented) with the Coast Guard or a foreign country.
With so many titling options, mistakes may occur in the administration of the title paperwork, which may lead to a boat being titled under two different jurisdictions. For example, if a DMV clerk is not familiar with the procedures involving documented vessels, a vessel may be transferred from Coast Guard documentation to DMV registration without removing it from documentation. This will create a “second chain of title,” since the Coast Guard and DMV titles will both be active.
A second chain of title on a boat may be created by an administrative mistake, but the problem will be remedied under most circumstance when it is discovered by the owner. On the other hand, if the owner fails to correct the administrative mistake, it is usually a sign that a fraud has been committed.
In the case described by our reader, it appears that a prior owner transferred the boat to DMV registration immediately prior to the sale of the boat to our reader’s father. The boat appeared to have a clear title, since the DMV had no record of the mortgage that was recorded on the Coast Guard title. Under those circumstances, it is likely that the prior owner fraudulently transferred the boat to DMV registration to avoid paying his lender upon the sale of the boat.
So, where does our reader go from here? Vessel purchase agreements typically include language requiring the seller to indemnify the buyer against undisclosed liens and encumbrances, but that won’t be helpful in this case, because the seller is deceased. And, at this point, he can’t simply ignore the problem. Regardless of whom he or his father ultimately sell the boat to, they will have their own obligation to provide clear title to their buyer. If our reader wants to go through with the purchase from his father, he indicated that he will need financing to buy the boat, and lenders invariably require a boat to be Coast Guard-documented to protect their security interest.
The Coast Guard won’t simply erase an encumbrance, even if it’s 30 years old and the parties are deceased. The only solution in this case may be for our reader to file a “quiet title” lawsuit, asking the court to order the Coast Guard to record a satisfaction of the mortgage.
Quiet title lawsuits are often the only avenue for someone facing a title dispute on a parcel of real property, and a similar procedure is available for personal property such as a boat. In our reader’s case, he would need to file suit against the lender and his heirs, claiming that the mortgage is no longer valid. The court will require our reader, as the plaintiff, to exhaust all avenues to track down the lender’s heirs and serve them with the lawsuit. If the judge is convinced that the heirs cannot be found, he or she will authorize the plaintiff to publish notice of the lawsuit in the legal classified section of a newspaper. Assuming the heirs never step up to respond, the judge will issue the order to clear the title. If the heirs are located and they decide to enforce the mortgage, our reader may be facing an entirely different kind of fight, but this is unlikely on a 30-year-old mortgage.
Title problems are relatively rare, especially for new boats that have been Coast Guard-documented since they were originally launched. Older boats that have been registered through the DMV or a foreign country have a greater risk of problems. A buyer who is concerned about a boat’s title history should contact a maritime attorney experienced in vessel sale transactions for advice.