Bought boat with a mortgage on it ( Hypothetical)

[Thepipdoc]

Im about to buy a boat from a dealer ( not a broker) and I'm in the final stages of the purchase process.
My question is what would happen if it transpired that the boat I'm buying has a mortgage on it which was taken out by the previous owners of the boat, who then subsequently sold it to the dealer?
Who would own the boat? The mortgagee that loaned the money to the previous owner or me?
Would the mortgagee be able to take the boat from me?

I'm thinking if a similar situation occured in the motor industry the loan company would simply take the car back wouldn't they?

 

[sailorman]

Buy "Free of all Encumbrances & Lein" in the contract

 

[Thepipdoc]

Buy "Free of all Encumbrances & Lein" in the contract

Would that mean the mortgagee (or any other interested party) could not take the boat from me?

 

[SpottyDog5]

Check all paperwork is original, bill of sale showing full audit trail, Builders cert,etc. Mortgage company won't release these if money still owing.
Perhaps get an independent broker to check paperwork is in order...
Apply for finance on her, let them do all the checks and then turn them down

 

[jfm]

Buy "Free of all Encumbrances & Lein" in the contract

Sure, get that in the contract. But it's only 10% of the answer. Merely writing that in the contract dfoeesn't make a mortgage go away, as Pipdoc no doubt realises.

A few things:

1. I'm only delaing with UK law

2. Don't compare with cars. There are special laws on cars that limit the lender's powers in relation to outstanding finance/HP etc

3. your general premise is right. The mortgage still exists and the changes of ownership don't make it go away. You will have contractual recourse against the dealer of course, becuase the contract will have promised you good title (assuming sensibly drafted) and if dealer is good for the money that will save the day

4. If for some reason you cannot get recourse from the dealer your only hope is to argue that the lender's behaviour has put it in a possession where it may no longer enforce the mortgage. That is tricky stuff, expensive litigation territory, and hard to predict any outcome becuase it will depend on the precise facts. For example if the lender could have recorded the debt on part 1 reg but didn't, that will weaken his case. If it was recorded on part 1 you will likely lose. If lender didn't mark the goods that weakens their case. If you wrote to lender and asked if they had a mortgage and they replied no that weakens their case. If the loan is in arrears on the monthly payments for say a year and lender has done nothing to take possession of the boat that weakens their case. And so on - it is all in the detial and it is impossible to say generically whether a lender will be allowed to enforce their security in a case like you describe

 

[jfm]

Would that mean the mortgagee (or any other interested party) could not take the boat from me?

No it wouldn't. A contract between A and B has no bearing on C's position

 

[jfm]

Check all paperwork is original, bill of sale showing full audit trail, Builders cert,etc. Mortgage company won't release these if money still owing.

That isn't correct. Many mortgaged boat loan terms allow owner of boat to keep possession of all the docs including BoS, BCert, Part 1 original cerfif, original VAT invoice, and so on. Sure, some lenders might keep these docs, but not all.

 

[PaulGooch]

Im about to buy a boat from a dealer ( not a broker) and I'm in the final stages of the purchase process.
My question is what would happen if it transpired that the boat I'm buying has a mortgage on it which was taken out by the previous owners of the boat, who then subsequently sold it to the dealer?
Who would own the boat? The mortgagee that loaned the money to the previous owner or me?
Would the mortgagee be able to take the boat from me?

I'm thinking if a similar situation occured in the motor industry the loan company would simply take the car back wouldn't they?

As JFM states, forget about cars. If you buy a car from a dealer that turns out to have outstanding finance on it, the dealer becomes liable for the outstanding money.

 

[SpottyDog5]

That isn't correct. Many mortgaged boat loan terms allow owner of boat to keep possession of all the docs including BoS, BCert, Part 1 original cerfif, original VAT invoice, and so on. Sure, some lenders might keep these docs, but not all.

Only financed a boat once, that was my experience, though it was the norm.
Why do you think that is, surely it keeps them more secure?

 

[gravygraham]

I've recently done some legwork on this topic having just taken ownership of our new (to us) flybridge today (yay!). Among other docs and advice, the RYA blurb says words to the like of "write or contact the finance houses and ask about the boat in question". Yeah right Mr RYA, I reckon this was drafted in the 1960's. Do they seriously think any bank or marine mortgage outfit will engage in dialogue with an unknown Joe about one of their customers? You'd be lucky to ge to speak with a human, let alone get the time of day out of them.

I hope Thepipdoc gets the answers needed to give him/her the confidence to go ahead.

 

[Sneds]

Before I bought my current boat I faxed or e-mailed, they wouldn't divulge anything over the phone, Barclays, Lombard and maybe RBS who all confirmed they had no interest in my prospective purchase.
This was 5 years ago and I was led to believe these were the only marine mortgage companies in the UK.
Happy to be corrected.

 

[henryf]

With a car the loan will be registered with someone like HPI and so a quick check confirms either way. Were the finance company not to register their interest they would have a hard time persuing their interest. Make no mistake, they would go through the motions to the extent that you'd be sure they were in the right, but they would struggle in court.

As a dealer you are assumed to know about places such as HPI and so in the event of your buying a car with outstanding finance the lender will persue you for the money.

As a private buyer you will usually get to retain the car providing you can prove you paid market value for it and were genuinely unaware that any outstanding finance existed. The finance company will have to (quite rightly) chase their customer.

What is bizarre in the marine industry is that lenders don't seem to register their interests with HPI or an equivalent. For UK supplied and operate vessels it would be straight forward using the hull serial number. It would even be simple enough to extend it Europe or even world wide. You are never privy to specific details of any outstanding loan, merely that one exists and the contact details for the lender.

You could also extend the scheme to include an "at risk" register onto which a vessel such as a rental boat can be placed. That way if someone goes to try and sell it the rental company is notified (as is the would be buyer) and fraud can be avoided.

Indeed you could even go the whole hog and register insurance total loss payouts so would be buyers are alerted.

Yet another area where the marine industry seems to bury it's head in the sand. A bit like used boat pricing, brokers & the like

Very odd given the relative value of boats and cars.

Henry

 

[Piers]

I believe it's always very hard to prove or disprove if a boat has a mortgage on it. If it has, the mortgage is on the boat and not a person, and therefore transfers with the boat with the debt transfering to the new owner.

Getting a paper that states it's free of whatever would only help if the seller is not a person of straw, but it still means you would have to go through the hassle of court, costs, time and so on.

The question would be that if the owner hadn't already settled the debt it probably shows they didn't have the money in the first place, so the paper wouldn't really be worth the money it's printed on.

The only real safe way is to ensure (somehow) that there's no mortgage. I wouldn't run the risk. It's not worth it.

 

[ari]

With a car the loan will be registered with someone like HPI and so a quick check confirms either way. Were the finance company not to register their interest they would have a hard time persuing their interest. Make no mistake, they would go through the motions to the extent that you'd be sure they were in the right, but they would struggle in court.

Really? Are you sure about that?

And separately, what if they had registered their interest, but the boat's name had been changed?

I agree with you totally about the central register with hull number, engine serial numbers and gearbox serial numbers, seems the obvious way to protect customers and finance companies alike, but I recall a thread about that once before, and most people seemed dead against it.

 

[maby]

No it wouldn't. A contract between A and B has no bearing on C's position

But it would put you in a strong position to sue the dealer - assuming he's still in business.

 

[Thepipdoc]

And separately, what if they had registered their interest, but the boat's name had been changed?

As Henry said, the hull serial number should be used.

 

[maby]

Few finance houses will give a loan on a boat unless it's Part 1 registered and the registry will record mortgages issued against the boat. You can get a registry search done and, if it's not registered, or there are no loans recorded against it, you will be a lot safer.

 

[ari]

Few finance houses will give a loan on a boat unless it's Part 1 registered

Yes they will.

and the registry will record mortgages issued against the boat. You can get a registry search done and, if it's not registered, or there are no loans recorded against it, you will be a lot safer.

Provided the bloke that's selling it and is claiming that there is no mortgage has been kind enough to leave the part one reg number on the boat for you to search against, otherwise, how are you ever going to know or be able to do your search?

 

[ari]

As Henry said, the hull serial number should be used.

This would make sense, along with engine and gearbox serial numbers.

Ok, they could be fraudulently changed but it'd be very hard to do without leaving trace, much much harder than removing a plaque that may or may not have been afixed in the first place. Plus there's a very good chance that they'll be on the original paperwork (VAT invoice, Build certificate) so easier to cross reference.

A bloke who bought a used unregistered boat, got a mortgage and had the boat registered at the same time as part of that, and then doesn't put the plaque on (or removes it) leaves no paperwork trace anywhere that can be followed.

 

[maby]

Yes they will.



Provided the bloke that's selling it and is claiming that there is no mortgage has been kind enough to leave the part one reg number on the boat for you to search against, otherwise, how are you ever going to know or be able to do your search?

The rules for Part 1 registration are quite strict - every boat must have a unique name - plus hull number - not hard to search.