free of encumbrance check - help !!

[BOATKID]

okay - so I have had a survey done & paid deposit, sea trial is this weekend how do I cover myself against the owner having a mortgage on the boat. It is a private sale, will a bill of sale stating vessel is free of encumbrance suffice.

all advice greatly received

cheers

 

[Tranona]

okay - so I have had a survey done & paid deposit, sea trial is this weekend how do I cover myself against the owner having a mortgage on the boat. It is a private sale, will a bill of sale stating vessel is free of encumbrance suffice.

all advice greatly received

cheers

If the mortgage is from a finance house secured against the boat then it will almost certainly have a charge against it on the registry (ie Part 1 registered). However if it is not registered then there may still be a charge against it - do you have suspicions?

 

[bobgoode]

My "mortgage" is more a loan where the companu hold the title documents. When buying the previious boat I wrote to the major marine lenders asking if they had an interest in the vessel by recorded delivery. Only one replied in the negative, one other refused to divulge such information. The opinion at the time was that a lender would find it difficult to come on to you for the money if they had not disclosed or taken steps to make their interest obvious.

 

[Observer]

Is the boat Part I registered? If it is not, then it is unlikely there is a mortgage on it.

If it is Part I registered you can do a search yourself at the Shipping Registry.

What's the value of the purchase? Lenders will usually not require a mortgage for loans below a certain value. I'd guess in the order of £30-£50k.

Have you asked the vendor (i) how he paid for the boat (i.e. with or without finance) (ii) if there is any finance outstanding on it (note this IS two different questions - he may have paid with his own cash then raised finance subsequently).

If it is not Part I registered (or Part I registered but no registered mortgage) and the vendor says it is clear of finance and you have no reason to think he could be misleading you and paperwork etc is in order then you probably have a clean boat (unencumbered title). The bill of sale simply ensures that that title is transferred to you.

However, note that the other type of encumbrance that can arise on a boat is a "repairer's lien" - for money owed for work carried out. If major work has been carried out recently, find out by whom and ask if all debts due for that work have been paid.

 

[BOATKID]

No I haven't asked him yet about finance on the boat,
does the SSR document mention anything about mortgages on the boats

I have no suspicions what so ever about the integrity of the seller

 

[jimg]

No I haven't asked him yet about finance on the boat,
does the SSR document mention anything about mortgages on the boats

No, the SSR is a fairly meaningless document and I imagine you could even get one for a boat you do not own!!

 

[Observer]

No I haven't asked him yet about finance on the boat,
does the SSR document mention anything about mortgages on the boats

I have no suspicions what so ever about the integrity of the seller

Well you should (ask him). A bona fide seller will not be offended by the question - in fact he will understand your concern and be motivated to help you satisfy yourself. As jimg said, SSR (Part III) registration doesn't help at all as evidence of title or absence of mortgages. I assume that your target boat is SSR registered (have you seen the SSR papers?) That suggests (quite strongly) that there is no mortgage because a lender (at least an institutional lender) who felt it necessary to take security would (almost certainly) have wished to register the mortgage and so have required Part I registration.

That leaves (a) possible security interest held by a 'private' lender (e.g. a friend/relation) and (b) outstanding finance given by a mainstream lender on an unsecured basis (e.g. personal loan). You don't have to worry at all about the latter. The former is a possible concern (but unlikely) and I believe, as an innocent buyer, you would get unencumbered title anyway in the former case.

 

[jfm]

However, note that the other type of encumbrance that can arise on a boat is a "repairer's lien" - for money owed for work carried out. If major work has been carried out recently, find out by whom and ask if all debts due for that work have been paid.

Small point observer, and correct me if you know better, but such a lien only operates if the repairer still has lawful physical possession of the boat. The lien merely allows the repairer to maintain posession until paid, so long as his possession was lawful in the first place. Once the boat is back in the possession of the owner, as it would be for a seatrial, there can be no lien any more

 

[Observer]

Small point observer, and correct me if you know better, but such a lien only operates if the rapirer still has lawful physical possession of the boat. The lien merely allows the reparier to maintain posession until paid, so long as his posession was lawful in the first place. Once the boat is back in the posession of the owner, as it would be for a seatrial, there can be no lien any more

Yes I agree. I chose not to complicate the explanation because there is a possibility (perhaps remote) that work could have been carried out by the marina proprietor where the boat is currently berthed, who I suppose could also have a lien for unpaid mooring fees?

 

[BOATKID]

thanks for all advice guys

I have asked the question now and Yes there is a mortgage on boat, what is the best & quickest route for me to proceed to settlement (after sea trial of course)

 

[ari]

Find out who the finance company is, ask them for a settlement figure (they will need the owners permission in writing to be able to give you this) and pay them direct and the owner the balance.

In answer to your original question however, there is no way of checking.

A lot of people suggest that if a boat is Part One registered you can check the register (correct in theory) and if it isn't there can't be a mortgage secured, but neither is strictly true.

A finance company can still claim a lien even if not registered, and checking the registration of a Full Part One boat relies on your knowing it is registered. In reality all the owner needs to do is ditch the carving and marking notice and change the name and you'd have no clue it was Part One registered.

There was a piece in MBM some while ago about this, and the need for legislation (it would be easy to legislate against, a simple central finance register recording hull and engine/gearbox numbers as well as name allowing easy cross reference. Finance companies only allowed to exercise a lien if on the central register).

But the government seem more eager to pursue extra control legislation instead. Surprise surprise.

 

[Observer]

thanks for all advice guys

I have asked the question now and Yes there is a mortgage on boat, what is the best & quickest route for me to proceed to settlement (after sea trial of course)

Are you sure it is a mortgage (i.e. formal security) and not some form of unsecured finance? If the boat is NOT Part I registered it would be very unusual (but not impossible) for a lender to have taken an unregistrable security.

In any event now you KNOW there is some form of outstanding finance I suggest you request the seller to agree that you pay the finance settlement figure directly to the lender and the balance to him. That way you will be absolutely sure there is no encumbrance (at least from that lender). You should either get a copy of an up to date settlement quotation addressed to the seller or (with the seller's authority) get one directly from the lender.

Again, if the seller is bona fide, he should not object to you ensuring the security of title.

 

[Observer]

In answer to your original question however, there is no way of checking.

A lot of people suggest that if a boat is Part One registered you can check the register (correct in theory) and if it isn't there can't be a mortgage secured, but neither is strictly true.

A finance company can still claim a lien even if not registered, and checking the registration of a Full Part One boat relies on your knowing it is registered. In reality all the owner needs to do is ditch the carving and marking notice and change the name and you'd have no clue it was Part One registered.

Ari,

It is possible for a lender to have an unregistered mortgage but, in practice, it's unlikely. If a lender is sufficiently concerned to take security then why would he not protect that security by using the mechanism available through Part I registration?

It's also possible for a lender to provide finance by hire purchase or conditional sale (or even leasing), where he would retain ownership rights. In practice, it's not done (that I know of) - mainly because of the legal liabilities that are fixed on a ship owner under maritime law.

In any event, a lender can only enforce a security interest if the borrower has granted one - it does not exist merely by reason of the debt owed by the borrower.

This is UK law position. Other countries may have different practices.

 

[ari]

Ari,

It is possible for a lender to have an unregistered mortgage but, in practice, it's unlikely. If a lender is sufficiently concerned to take security then why would he not protect that security by using the mechanism available through Part I registration?

.

Cost. It's very expensive to fully P1 a boat. So on smaller boats finance companies often don't do it, but can and will still re-possess the boat if the payments aren't forthcoming and there is no alternative, whether it's still owned by the person that took out the finance or not. Far from an "unlikely scenario" I'm afraid.

In truth, the whole system has relied to date on a combination of trust, honesty, and blissful ignorance.

It will be very interesting to see whether, in these straitened times, the so far extremely rare situation of boats sold with finance remaining on them becomes more of an issue.

But the fact remains, whether you're buying a £20K speedboat or a £2M motoryacht, there is no proven way of ensuring your purchase is debt free.

 

[Observer]

Cost. It's very expensive to fully P1 a boat. So on smaller boats finance companies often don't do it, but can and will still re-possess the boat if the payments aren't forthcoming and there is no alternative, whether it's still owned by the person that took out the finance or not. Far from an "unlikely scenario" I'm afraid.

I can see why cost of Part I registration may be a barrier on a lower value boat (although it's not that expensive) but what is the nature of the security which entitles the finance co to "repossess". I've never heard of hire purchase or conditional sale being used to finance boat purchases.

Looking at the websites of the leading marine finance providers (Barclays, Lombard and HSBC (Bank of Scotland are now out)), they all talk about marine mortgages. I simply don't find it likely that any of those will nmarket a secured finance structure and then not bother to protect the security by registering the mortgage. However, I could be wrong....

 

[Tidnock]

I assume that you are paying cash for the boat, otherwise the problem somewhat belongs to your finance company.

If you are paying cash why not take some finance out on the boat just a nominal amount, they will ensure the boat is free of finance. Take finance that can be settled early, then little old private individual you will then have a finance company on your side and when you settle you will have bought the boat from the finance company.

 

[ari]

I can see why cost of Part I registration may be a barrier on a lower value boat (although it's not that expensive) but what is the nature of the security which entitles the finance co to "repossess". I've never heard of hire purchase or conditional sale being used to finance boat purchases.

Looking at the websites of the leading marine finance providers (Barclays, Lombard and HSBC (Bank of Scotland are now out)), they all talk about marine mortgages. I simply don't find it likely that any of those will market a secured finance structure and then not bother to protect the security by registering the mortgage. However, I could be wrong....

I'm afraid you you are, and they do. Often they will hold on to title documents as "security" (the theory being that the owner cannot sell the boat without the documents), but it's not hard to download a Bill of Sale from the MCA web site, fill it in with details of your boat and your purchase and have it "signed". Or simply not bother, most buyers don't know what they should have, and there's nothing to stop the owner signing a Bill of Sale to them.

The whole system is a mess, there is simply no way to protect yourself from buying a used boat with finance on it, whatever the amount. As I say, even if you're buying a million pound fully Part One registered boat with the mortgage lodged against the register, there's nothing at all to stop an unscrupulous owner throwing the part one plate (carving and marking notice) in the bin and changing the name. Then how are you going to check the register? There's no cross referencing information.

Even buying through a broker is no protection. Provided he shows due diligence (I couldn't check the Part One mi lord, I was told the boat wasn't registered and that there was no finance so I've done my bit) he's untouchable. The problem is all the new owners.

Utterly farcical situation.

 

[ari]

I assume that you are paying cash for the boat, otherwise the problem somewhat belongs to your finance company.

If you are paying cash why not take some finance out on the boat just a nominal amount, they will ensure the boat is free of finance. Take finance that can be settled early, then little old private individual you will then have a finance company on your side and when you settle you will have bought the boat from the finance company.

What you advise will help, but it won't absolve you, the owner.

A Fairline Corniche was sold once with finance on it. The new owner (if I recall the scenario correctly) had finance on the boat, so by your reckoning should have been protected.

I believe what eventually happened was that both finance companies and the owner eventually agreed to commit a third each (ie if say £30K owing, the original finance company agreed to write off £10K and the owner and his finance company paid over £10K each to the original finance company).

Of course that was after the boat being arrested and put out of action for most of a year...