Legal Title

[ontheplane]

Now I am really going to get a reputation for being a **** stirrer if I carry on like this - but these things interest me, and I'm continuing to be staggered just how unregulated the ownership of a high ticket price item such as a boat is....

SO I've come up with another poser for the experts herein on this forum....


If I lend "Bob" £5000 to buy a boat, and don't register the boat or the debt Part 1 does the charge actually exist?

If for example they then subsequently repay me, but I still have the original letter that says I "secured a loan of £5000 on FairPrinSeeker Hull number 45q34623-4693" what in gods name happens then???

How could the new owner prove that the debt didn't still exist, he won't know if it's been paid or not, how could I prove the boat actually WAS security and so on....

For example - If I register a charge on a House, it's registered at Land Registry - without that charge, it doesn't exist and it doesn't matter what paperwork you may have to the contrary...

If you lend a business money and secure it against the assets that's a debenture and registered with Companies House.

In my experience therefore, for a charge to exist on a good, it needs to be properly registered with some independent official body to stand a cat in hells chance of being enforceable.

So taking that a step further - If it's not registered as a charge on Part 1 and the seller has signed a statement to say it's free of lien or encumberance then you effectively have two signed documents - one says there is a charge and one says there isn't - almost a one word against another situation....

And It can't be whichever date preceeds another date because lets be honest - paperwork can be created retrospectively.....


What I am getting at is if I, and Bob, were dishonest we could cook up a scheme whereby he sells his boat, I produce a document 5 years later signed to say he owes me money and it's secured on said boat, and I want the boat! Surely this can't be right, and to create a legal charge over an asset it must be registered SOMEWHERE to make it official?


By the way - I am not doing this to stir up trouble! I am just interested as it seems crazy that there could be debts secured on boats, and no way of proving whether they are still valid or not!

 

[benjenbav]

Okey, dokey. For a long time before there were centralised registers people lent each other money and took security for its repayment. Evidencing the security is a serious issue and for example, in land transactions, before the vogue for registration, people used to leave title deeds with the lender. A future buyer would know that if you didn't have the original documents, someone else probably had a loan on the land.

Separately the doctrine of notice was developed. What this means - although this is a gross oversimplification - is that if you could prove you were a bona fide purchaser without notice (of a previous transaction) you would take ownership of the item even if it had been used as collateral for a loan or had been sold to someone else previously.

Complex rules grew up as to what exactly you needed to do to prove that you were a bona fide purchaser without notice (often called "equity's darling") and you would often be deemed to be tainted with knowledge of a previous transaction even if you did not subjectively know about it.

In brief the simple answer is that there are rules for interpreting the sort of situation you describe. There are many very dull books on the subject which I can't remotely hope to summarise in a quick post.

If you want my opinion on whether pre-registration systems are more or less susceptible to fraud than register-based systems, I would just ask the question, did you worry about your bank account being hacked into before the internet? Different systems for different worlds, I guess.

 

[Tranona]

Think you are making it sound all too complicated. It is unlikely that there is much activity in finance secured on pleasure boats outside the registered system. If you think about it logically it is not something a lender would choose as security by the very nature of the asset. It is mobile, not liquid may not have registered title and generally declines in value over time. Even with secured lending there are significant constraints on both the level of lending and the value. That is you are unlikely to get secured finance for a high proportion of the value or for low value assets.

As I suggested in my last post on the other thread, there are many ways of raising finance for a boat that do not involve the boat as security. The general view is that "silent" charges (ie non registered) would be difficult to enforce on a subsequent owner.

So in reality think you have to accept that unregistered charges against boats is not a big issue. Of course you never know 100% but if you think of the literally thousands of boats that change hands each year without any problems, you will realise that the probability of you buying a boat with a problem is so tiny, that it is hardly worth considering. Not a reason for not doing the checks such as they are so that you can show you have done all you can to confirm the lack of charges.

Comparison with what happens in the motor trade is simply not valid. The checks are there because they are necessary. The level of financing is high, the asset is liquid and easy to disguise and the number of transactions is vast compared with boats.

It is far more important when buying a used boat to recognise that if you are buying from a private person you are not covered by consumer law, but by the contract with the vendor. Your efforts should therefore be directed towards confirming that the boat is as described and suitable for your purpose as you have no comeback on the vendor once you have completed the transaction.

 

[Momac]

'Bob' should seek an unsecured personal loan from a reputable source.
He might need to borrow a little more than £5k to get a good rate of interest.

 

[Wino]

What about the SSR scheme? I see a boat I fancy on a mooring or at anchor, I note details, and register her - under a different name - with SSR. I receive registration docs.
A few weeks later on a Friday afternoon (as no one can check details until Monday) I go aboard and take her away, apply new name and chnge colour appearance, and grind out & replace hull number. A week or so before taking her, advertise her on Ebay.
Once sold just what is the chance of the original owner ever getting her back?

 

[Tranona]

What about the SSR scheme? I see a boat I fancy on a mooring or at anchor, I note details, and register her - under a different name - with SSR. I receive registration docs.
A few weeks later on a Friday afternoon (as no one can check details until Monday) I go aboard and take her away, apply new name and chnge colour appearance, and grind out & replace hull number. A week or so before taking her, advertise her on Ebay.
Once sold just what is the chance of the original owner ever getting her back?

You are just being a thief! SSR is NOT a register of title so is absolutely meaningless in this context. Nobody would buy your stolen boat without any paperwork (I say nobody, but mean nobody who understands the process and does not want to end up in jail). As to the original owner getting it back, he always owns the stolen goods so just has to prove it is his boat.

 

[ontheplane]

So if I read it right.... If you buy it in good faith, and are not notified of an encumberance, and that if a charge exists, but is not properly registered (Part 1 for example) then in reality any charge would not really exist anyhow!


I wasn't posting the thread as I thought there was a big risk, it was more just because I find the subject interesting and I wondered if (like a house) there is a rule that if the charge isn't properly registered, it doesn't really exist.

 

[Tranona]

It would really depend on the facts of the case, but if somebody was lending against the security of the asset you would expect them to take steps to ensure that it is known that the charge exists and prevent the owner from selling without discharging. The availabilty of a mechanism for registering the charge is one way. Others might include the interest being shown on a title document - for example I own my boat jointly with my wife, and although it is not on the Part1 register her name is on the Bill of Sale and her interest is also on the insurance policy. This means it cannot be sold without us both signing the BofS and if I die, only 50% of the boat is in my estate, but my wife could sell as my executor. If the boat were on Part1 that would be formalised such that we own 32 shares each. This mechanism could also be used in private financing, but of course it only gives a share of the value and not a fixed amount.

Your first line of defence if you were a buyer would be breach of contract by the vendor if he sold the boat free of charges if he knew there was an oustanding charge.

As you say, an interesting problem but probably not one that is common.

 

[Brian Legal]

The answer to this is that, no matter how watertight your contract, you can never be absolutely certain that you are getting legal title free from loans.

In the UK any mortgages should be recorded at Part 1 the Registry. If the boat is on Part 3 of the register or is unregistered, lenders adopt the policy of taking the documents - just like registered and unregistered conveyancing.

However, there the similarity stops because even if a mortgage is unregistered, it can be enforced against an innocent purchaser, who acted in good faith. A relatively recent Court of Appeal case (1992) called the "Shizelle" sets out this very same principle. Here, the bank walked away with the boat despite the mortgage being unregistered and the owner knowing nothing about it.

This seems very unfair but it is where we stand legally. It essentially means that just because you don't know about a loan this does not mean that it does not exists.

I agree that you are entitled to go after the seller. This is because he or she should have warranted that the boat is free of liens and encumbrances. One word of caution here - if he seller can't be found (or as happened in one case - was in prison) or has no money, you are in difficulty. It view of this (and probably the state of the market) it is becoming increasingly common for persons buying from a company, to ask for a personal guarantee from one of the directors.

 

[ontheplane]

Amazing though isn't it....

Although I full accept the risk is miniscule, there is no doubt there is a risk....

I'm pretty sure that at the age / level of boating I do it's minute - but would put me off buying a newer and much more expensive boat that's for sure.

 

[Tranona]

Amazing though isn't it....

Although I full accept the risk is miniscule, there is no doubt there is a risk....

I'm pretty sure that at the age / level of boating I do it's minute - but would put me off buying a newer and much more expensive boat that's for sure.

Somewhat perversely, it is probably less likely with a newer boat because the paperwork trail is likely to be much better.

Clearly the remote possibility does not put people off buying boats!

 

[Observer]

It view of this (and probably the state of the market) it is becoming increasingly common for persons buying from a company, to ask for a personal guarantee from one of the directors.

If that's true it doesn't make much sense in the context of mitigating risk of buying encunbered goods. If a company grants a charge it has to be registered at Companies House and I believe I'm correct in saying that an unregistered charge granted by a company is void against a good faith purchaser buying without notice of the defect in title. Obviously nice to have a PG anyway to provide additional recourse for other breaches.G