How do you know if a boat has outstanding finance ?

[MapisM]

As well as the law, the public policy aspect will force the court to rule that the duped buyer loses out, not the lender.
Otherwise you destroy the UK finance industry which adversely impacts millions of people.

All right, I understand that.
I might argue that this is rather a "pragmatic" than a "rock solid fair" legal attitude, but I'm genuinely more interested in the actual legal side than in our respective (subjective) opinions, so let's forget that.

My previous point still stands, though.
Leaving aside the fact that in IT a security not transcribed on the boat documents would be null (hence obviously no IT financial institution would dream to lend any money without such formalization), would a UK court uphold a UK lender who accepted an IT flagged boat as a security without asking the registration on the boat documents, even if it's widely known that in IT this is legally required, under pain of nullity?

If the answer is yes, that strikes me of UK law wiping the lender's bottom - to the point of rewarding stupidity, because in the event that the boat would have been sold to an IT citizen with no UK nexus, the lenders could have saved themselves the time to go to the Court and directly stick any agreement the previous owner could have signed directly where the sun doesn't shine.

If the answer is no, then the IT system is safer, at least in this respect - Q.E.D.

 

[jfm]

But that's the point, J: in my previous set of assumptions, Z did a perfectly adequate due diligence, if you re-read what I wrote - and if you can think of anything else he could/should have done, I'd be curious to hear it.

In fact, if anything, it's Y who didn't do enough to secure his right towards the security promised by X, because aside from whatever X could have written and signed (possibly including in his promise also the Rome's Coliseum! ), Y should have asked X to hand him over the boat "blue book", there and then.

Therefore, IF (in fact, I've yet to understand if that's what would actually happen, in this case) English law would consider of higher priority the pledge to Y just because it happened before the boat sale to Z, in spite of the fact that Y didn't do anything to secure his credit and Z didn't have a snowball's chance in hell to discover its existence, well, then the law would do precisely what you are saying that it doesn't want to do, i.e. wipe Y's bottom.

All these speculations aside, of course I can see your point, in principle.
But what I can't for the life of me understand is that since in this situation the law MUST wipe someone's bottom (it's just a matter of whether Y's or Z's), which would be the "rock solid fair" alternative, in English law?

Hmm this is complex and the facts are moving slightly. I didn't read your post as meaning Y had done something inadequate at the point Z's interest came into existence. I am working on scenario that Y accepted a pledge of the boat as security for a debt owed by X to Y, perhaps with a good quality document. When Z came along the next day Y didn't yet have time to perfect his security eg by taking the blue book (if that is market practice in IT; I don't know). So Z came along, did due diligence, but that has as its known outcome the reduction of risk, not a state guarantee that Z gets clean ownership of the boat. So whether he likes it or not Z bought a boat that had a pre-existing Y claim on it.

So to repeat, in my analysis I am working on the basis that Y has acted reasonably and so has Z. If Y were seriously deficient in doing what was customary or required of a pledge holder then yes you are right that a UK court might nullify the pledge in favour of Y. But if Y and Z both acted well/acted reasonably (my assumption) then a choice has to be made by the court, and that choice for a UK court would be that Y "wins". I don't think that is a case of wiping Y's bottom; it's a case of not wiping Z's. But it does all depend MapisM on what assumptions you make about good/bad/lazy/off-market behaviour on the part of Y mostly, and Z a bit.

Think of this from point of view of the wider world, not just X,Y,Z. UK law is by a very wide margin the world's leading law for borrowing money under. Many big IT companies will be financed by banks under English law loans; the reverse is hardly ever true. English law is regarded as predictable and clear in how it upholds the rights of borrowers, lenders and security owners. That makes debt less risky, and therefore more fairly priced, which benefits society as a whole. That position has been arrived at by clear thinking, which in this case means Z must lose if Y has done nothing wrong. Z knew or should have known of the risks he took when he transacted with X and the downside cost of those risks must therefore rest with Z, and not be passed to another (Y) who did not participate in the transaction where X was a fraudster. If a country's courts start diluting that clarity by feeling sorry for Z and ruling in Z's favour at a cost to Y the original lender, you destroy confidence in loan transactions generally. Z took the risk here and must carry the can. An important aspect to this analysis is to imagine, if Z bought the boat with "all personal effects on board as is" and the lottery ticket sitting on the saloon happened to win €100m a few days later, who would get that money. Answer in UK is Z gets the money not Y or X. Thus Z is exposed to upside as well as downside because that is the deal he struck, and that is fair.

 

[jfm]

Leaving aside the fact that in IT a security not transcribed on the boat documents would be null (hence obviously no IT financial institution would dream to lend any money without such formalization), would a UK court uphold a UK lender who accepted an IT flagged boat as a security without asking the registration on the boat documents, even if it's widely known that in IT this is legally required, under pain of nullity?

If the answer is yes, that strikes me of UK law wiping the lender's bottom - to the point of rewarding stupidity, because in the event that the boat would have been sold to an IT citizen with no UK nexus, the lenders could have saved themselves the time to go to the Court and directly stick any agreement the previous owner could have signed directly where the sun doesn't shine.

If the answer is no, then the IT system is safer, at least in this respect - Q.E.D.

I think I mostly answered this above. Assuming there is UK nexus then for sure a UK court wouldn't "punish" Y for failing to do what is required in IT law to create security, provided of course it isn't a case of a UK court being asked to give effect to an IT law pledge, which would be unusual but could happen in some odd scenarios. If it is a case of UK law security/pledge claimed by Y on Z's boat that happens to be IT flagged (even though you originally said red duster) then a UK court wouldn't and shouldn't care about IT law. So the UK court wouldn't "punish" Y for not transcribing the pledge onto the boat documents.

So I'm answering "yes" but that is not a case of wiping Y's bottom. If Y should have transcribed the pledge onto the boat documents and didn't, and the UK court still ruled in Y's favour, THAT would be wiping Y's bottom. But when Y has done nothing wrong (ie has not failed to do something required under UK law to perfect a pledge) he has no need of a bottom wipe. The person asking for the bottom wipe is Z, who has been duped by X but wants innocent Y to take the consequences of his (Z's) bad deal. And as said above, if it were a great deal (lottery ticket €100m) then Z would get the upside, so it's a bit rich of him to ask for downside protection paid for by Y on a one-way-street basis.

IT law may be safer on the security aspects of boat loans, but that is just one aspect of financing transactions. All the evidence on the planet says UK is the world's favoured law on debt transactions by a huge margin, and fwiw New York law comes second. Italy will always be way down the list (because, fwiw and totally imho, the regional courts pursue local rather than national policies, and there is huge fragmentation in the IT legal profession so you get 100x as many different answers to the same question as you would get in UK, which is already a big number! ).

 

[petem]

Yep, nowadays you self cert the carving and marking. There's also no checking that the boat has been de-registered from the SSR. If an SSR boat was subsequently Part 1 registered, under a different name (highly likely) and an owner didn't mark it, a future buyer would find it difficult or impossible to discover a Part 1 reg.

 

[jfm]

Yup, and not just "subsequently" but previously too.

 

[Tranona]

Tranona, I don't agree your views on Ari's post:

Re yr 1st para, of course Ari is assuming the loan is secured by the boat. That's the whole point. Of course the lender has registered the charge on P1, but Ari's point is that the seller can pass off the boat as non P1 registered and unfortunate buyer will not know that seller is telling lies.

Re yr 2nd para, in Ari's perfectly plausible fraud there is no need for an incriminating document trail. Ari's method is easy to execute. And there is no way a UK court will rule in favour of the duped buyer as you suggest, no way. As well as the law, the public policy aspect will force the court to rule that the duped buyer loses out, not the lender. Otherwise you destroy the UK finance industry which adversely impacts millions of people. Sure the lying seller is in trouble (criminal) but that is 100% beside the point in Ari's scenario

So I don't think ari's imagination is running riot.

I can't see anything in the post I was replying to that suggests that the boat is not on Part 1, nor that its identity has been hidden if the loan has been registered.

I was responding to the suggestion that the loan was not registered. ari has created several scenarios in his earlier postings and an earlier one did suggest one where the vendor did alter the identity of the boat, but not this time.

I do not see anything that the buyer has been duped about the boat's identity, only the possible existence of an unregistered loan.

 

[petem]

Yup, and not just "subsequently" but previously too.

Do you know if the P1 register can be searched using the HIN?

 

[petem]

Yup, and not just "subsequently" but previously too.

Actually, our boat had an expired Part 1 reg but there's no sign that it was ever carved or marked accordingly. So bases in my limited knowledge it's not unusual.

 

[hullabaloo]

So far it seems like,
it all stinks, big money, small rules.
I would feel safer buying a 2 grand ebay lemon off a Nigerian scammer on asda car park with, my email address, bank details and a fist full of cash.

or

would it help if you was to put a 10 grand loan agaist the boat with one of the bigger boat lenders ? even if you did not need to ?? (With the intention of paying the loan).

or

stick your neck out, buy the boat and hope your head does not get slap't

all rise !

 

[stelican]

larger finance houses were only lending above £25k the last few years not sure if they insisted on P1 for these lower amounts.

 

[jfm]

I can't see anything in the post I was replying to that suggests that the boat is not on Part 1, nor that its identity has been hidden if the loan has been registered.

I was responding to the suggestion that the loan was not registered. ari has created several scenarios in his earlier postings and an earlier one did suggest one where the vendor did alter the identity of the boat, but not this time.

I do not see anything that the buyer has been duped about the boat's identity, only the possible existence of an unregistered loan.

I don't think you read Ari's post accurately. Ari's scenario involved the loan positively being registered on Part 1 , but the buyer being misled into thinking the boat wasn't on the part 1 register (which generally would involve a small name change, but need not).

 

[ari]

In your doom laden scenario you are making an assumption that the loan is a charge against the boat. No sensible lender would lend that amount of money against the security of a boat without having control of this security for the very reasons you state. Either it will require the boat to be registered and the mortgage registered against it or it will take control over the documents to prevent a sale without its permission.

Your crooked vendor may well attempt to build a false document trail, but it is highly likely that there will be a hole somewhere in it that will raise suspicions when you or the broker carry out due diligence on both the boat and its owner. If it comes to court it is unlikely that the lender will be able to enforce his loan if you can show that you bought in good faith - that is you took the appropriate actions to verify that there were no charges against the boat. Remember also that the vendor has already signed that there are no charges against the boat so he is already in the wrong.

Being cautious is of course the right approach as there are dodgy people around, but you can let your imagination run riot and I would guess that your imagined scenario is one of the more unlikely to exist for real.

JFM has actually covered this better than I can but to answer a couple of points.

doom laden scenario, Far from it, it's a very clear and simple case of a situation where for one reason or another (and I gave just one example, there are many many possibilities from deliberate outright fraud to simply believing they're buying themselves a little extra financial breathing space with every intention of continuing the payments) someone might choose not to declare the presence of an outstanding loan. If you believe that that never happens then fair enough.

No sensible lender would lend that amount of money against the security of a boat without having control of this security for the very reasons you state. Either it will require the boat to be registered and the mortgage registered against it or it will take control over the documents to prevent a sale without its permission. Yes. Absolutely correct and exactly what I said.

Your crooked vendor may well attempt to build a false document trail, No. No false document trail required. At all. I made that very clear in my post, please read it again.

but it is highly likely that there will be a hole somewhere in it that will raise suspicions when you or the broker carry out due diligence on both the boat and its owner. There it is again, precisely the point I was raising. What 'due diligence'? In my example (someone raising capital against their boat - happens all the time) you've checked whether the boat is Full Part One registered and it's turned up 'no', you've spoken to the broker who sold the boat and had it confirmed that the seller paid cash and you've even seen the seller's bank statement showing the money going out. That is WAY more than 99% of buyers (or brokers!) would do. All the paperwork (Bills of Sale, Builder Certificate, VAT invoice) checks out. So what is this super extra due diligence that you are going to do over and above?

If it comes to court it is unlikely that the lender will be able to enforce his loan if you can show that you bought in good faith - that is you took the appropriate actions to verify that there were no charges against the boat. Sadly not the case at all.

I would guess that your imagined scenario is one of the more unlikely to exist for real. It probably won't, it usually doesn't. Same with buying a used car, most people selling them are honest. Did you make sure the last used car you bought had a HPI check? I sure did and my boat cost 10 times as much as my car - it's not unreasonable to want to do the same (just impossible, unfortunately).

 

[jfm]

I agree the above post by Ari fwiw.

larger finance house were only lending above £25k the last few years not sure if they insisted on P1 for these lower amounts.

Keep in mind it doesn't have to be a finance house. Boat owner can pledge his boat to a mate for a gambling debt he foolishly ran up last week and can't pay off.

I'm not sure why people are so bothered though. You could buy a €250k car or Breitling/Rolex/whatever with the same problem - none of this is unique to boats. The fact a car loan isn't registered on HPI isn't going to protect you from this scenario. HPI only protects you from finance house loans not loans from other sorts of lender.

All v unlikely scenarios. And easily dealt with by some due diligence on your counterparty not just the boat

 

[ari]

Do you know if the P1 register can be searched using the HIN?

Just on this one, no. The Part One is a very old fashioned and out of date system that hasn't really changed from the dark ages. It was never intended to be a HPI check type system, hence it's pretty rubbish at that job. It was really intended to prove ownership of big wooden ships and dates to a time when the Official Number was carved into a ships main beam (hence it's called a 'Carving and Marking Note', the ship literally was carved and marked).

 

[ari]

I agree the above post by Ari fwiw.


Keep in mind it doesn't have to be a finance house. Boat owner can pledge his boat to a mate for a gambling debt he foolishly ran up last week and can't pay off.

I'm not sure why people are so bothered though. You could buy a €250k car or Breitling/Rolex/whatever with the same problem - none of this is unique to boats. The fact a car loan isn't registered on HPI isn't going to protect you from this scenario. HPI only protects you from finance house loans not loans from other sorts of lender.

All v unlikely scenarios. And easily dealt with by some due diligence on your counterparty not just the boat

Thank you.

As to the Rolex/€250,000 car/house analogy. Fair enough, although I'd buy a very expensive watch through an authorised dealer, a very expensive car through a main dealer and a house through a solicitor tasked with doing some thorough (and effective) searches. None of these things then become completely bullet proof, but there is a fair degree of comfort (and comeback) built in. Someone got to make a concentrated effort to con you and there are ways of mitigating the risk.

With a boat, probably 95% of used boats on the market are private sales (many through a broker, but still private sales). The values can be massive, for many it's a 'life savings' job, the risk might be relatively low (and I agree that they are), but the stakes are very high. And it's so very easy - they just have to simply lie. That's it.

You could argue of course 'well if you can't afford to lose xx thousand pounds, don't buy a boat' and perhaps you are right.

But I personally don't see it as unreasonable to expect a modicum of security when dealing with what are, for many, huge and life changing sums.

 

[petem]

Surely this is a risk that could be insured against?

 

[jfm]

Surely this is a risk that could be insured against?

Probably possible but difficult to get sensible pricing because 1. Insured risk is wholly a single deliberate bad act by a fraudster rather than a collection of fortuity risks, and 2. Insurer worry about information assymetry.

 

[MapisM]

All the evidence on the planet says UK is the world's favoured law on debt transactions by a huge margin

Mmm...
I'm missing the reason why you are now drifting towards a debate about which governing law is favored for the most speculative transactions known to mankind, which btw are arguably among the culprits behind the worst world crisis in living memory - and I wouldn't be surprised if that would still be true for the next. Rest assured that I'm not envious of EN law leadership in this respect - not one bit.

My point was simply (see post #5), that the answer to the question in the thread title is dead easy, when the boat is registered in IT. Nothing else.
You objected "take care", and you explained that in some very specific cases this wouldn't necessarily be true, since some EN law - driven uncertainties could potentially kick in also in this case.
Fair enough, I take your word for it, and thanks for your (accurate, as always) explanations.
Otoh, I can't help thinking that if there's a moral of the whole story is that it's legally safer to buy an IT flagged boat AND neither move her outside IT waters nor change her registration, if you see what I mean...

As an aside (bearing in mind that as I already said I'm more intrigued by the strictly legal aspects, as opposed to "ethical" ones, which are somewhat subjective), based on this very thread it's crystal clear that what is being debated is indeed a common concern among Brit boaters - something totally unheard of, down here. So much for a "rock solid fair" legal system, methink…

 

[benjenbav]

Thank you.

As to the Rolex/€250,000 car/house analogy. Fair enough, although I'd buy a very expensive watch through an authorised dealer, a very expensive car through a main dealer and a house through a solicitor tasked with doing some thorough (and effective) searches. None of these things then become completely bullet proof, but there is a fair degree of comfort (and comeback) built in. Someone got to make a concentrated effort to con you and there are ways of mitigating the risk.

With a boat, probably 95% of used boats on the market are private sales (many through a broker, but still private sales). The values can be massive, for many it's a 'life savings' job, the risk might be relatively low (and I agree that they are), but the stakes are very high. And it's so very easy - they just have to simply lie. That's it.

You could argue of course 'well if you can't afford to lose xx thousand pounds, don't buy a boat' and perhaps you are right.

But I personally don't see it as unreasonable to expect a modicum of security when dealing with what are, for many, huge and life changing sums.

Much of this debate revolves around the age old question of one item claimed by two innocent parties where a third party has behaved dishonestly in some way. It is exascipated with boats owing to being high value items (versus the diesel generator bought from a man in a van who had “one left over from a trade show - yours for fifty notes, squire”).

The EN house analogy doesn’t work so well owing to the virtual certainty that the legal title will be as it appears on a central registry and so, if no charge is registered and money paid to the registered owner, title will pass to the buyer with any claim as to entitlement to the money being overreached so as to become an issue between the seller and the person claiming the benefit of an unregistered loan.

This body of EN law has built up as both cause and effect of the desire to use houses as a reliable security.

 

[Momac]

I am guessing there is a lower price limit and age limit at which lenders will provide a loan secured on a boat ?
Is, say, a 10 year old boat for £100k unlikely to have outstanding finance
While a 5 year old boat for £200k may well be financed
Does that sound about right?
If so perhaps buying an older boat is the safer strategy.