Presently there are two methods available to lenders to secure boat loans. The size of the boat determines which method is appropriate. As a rule, lenders should require that boats under 25 feet be titled and a notation of the security interest recorded on the title.
When lending on boats over 26 feet, a title does not adequately protect the lender. The only way a lender can be fully protected in these cases, is to require that the boat be federally documented and a First Preferred Ship's Mortgage recorded against the vessel.
A First Preferred Ship's Mortgage is a mortgage recorded against a vessel federally documented (registered) with the United States Coast Guard. The First Preferred Ship's Mortgage is provided for under the Ship's Mortgage Act of 1920, and takes precedence over all other liens other than crew wages, pre-existing mechanics liens or salvage.
A lender would never think of making a real estate loan without a Deed of Trust against the property. Similarly, securing boat loans with a Ship's Mortgage is just a good business practice and it does not have to be difficult.
Just as closing attorney takes care of the details of a real estate closing, Marine Documentations professionally prepares all documents necessary to provide the lender with the First Preferred Ship's Mortgage, including title searches.
As soon as the lender has notified us that a commitment has been issued, we contact the borrower and obtain the necessary information to place the vessel in federal documentation and provide the lender with a First Preferred Ship's Mortgage.
Once the purchaser has signed the papers, we issue the lender a "Letter of Agency" indicating that Marine Documentations has begun the process of federally documenting the vessel and recording the Ship's Mortgage. The lender should keep this letter in the loan file until the recorded mortgage is received in order to satisfy the bank auditors' requirements that the loan be properly secured.
Marine Documentations is a full service agency, insured against Errors and Omissions. Once you have qualified the individual, we do the rest.
We take the worry out of boat loans.
A First Preferred Ship's Mortgage is a mortgage recorded against a vessel documented with the United States Coast Guard. It is protected under the Ship's Mortgage Act of 1920, and takes precedence over all liens other than preferred Maritime Liens. The First Preferred Ship's Mortgage secures not only the note described, but also any future extensions or advances against the vessel.
As Mortagee of the vessel you may withhold disbursing of the funds until the documentation agent has received all papers necessary to file the First Preferred Ship's Mortgage and have the right to see all papers pertaining to the vessel. You may also require, from time to time, additional statements from the owner to further guarantee the security of the note. If you feel a change in the borrower's financial position endangers the debt, you have the ability to call the note.
The First Preferred Ship's Mortgage assures the mortgagee the owner will properly insure the vessel and refrain from encumbering the vessel. The mortgagee will be notified if the vessel is seized, libeled, or detained by any person or country within 15 days and discharge it from same. With the First Preferred Ship's Mortgage, the owner will comply with all state, local, and U.S. laws and keep vessel document current and on board the vessel, along with a copy of the Mortgage. The mortgage is assured the owner will not leave the country without intending to return, abandon the vessel or sell, mortgage, or charter the vessel without the consent of the mortgagee.