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Maritime Mortgage and Liens

When purchasing a ship or other water vessel, it makes sense to search for liens that may be encumbering the ship. The Coast Guard is the entity responsible for the registration of title and recording liens against watercraft, specifically through the National Vessel Documentation Center, or NVDC, located in Falling Water, West Virginia. The NDVC issues form CG-1330, which identifies the registered owner of a ship or other watercraft and lists liens against the ship. Those liens are primarily mortgages. In addition, the NVDC issues form CG-1332, which lists abstract of title that details transfers and liens that have been recorded against the ship or watercraft and any discharge of liens for the time that the ship has been a U.S. flagged vessel.

Foreign Vessels

A foreign vessel that wishes to register with the NVDC must comply with certain rules. Generally only a US-flagged vessel must be owned by a US citizen to be documented with the NVDC. However, the term “US Citizen” takes different forms based on different circumstances. A citizen can be a human or it can be an organization like a corporation. That is to say, say a corporation seeks to register a vessel. To qualify, it must be formed under the laws of the US or the laws of a state and its chief executive officer is a US citizen and no more of its directors may be non-citizens than a minority of the number needed to constitute a quorum of the board; however, the shareholders need not be US citizens. If the intent is that the vessel is to be used in US coastwise trade or US fisheries trade, the corporation must be at least 75% owned by US citizens.

Filing a Mortgage with the NVDC

When filing a mortgage with the NVDC, the mortgage documentation must reflect the following:

  • It identifies the vessel;
  • It states the name and address of each party to the instrument;
  • It states the amount of the direct or contingent obligations that is currently or may later become secured by the mortgage, excluding interest, expenses and fees;
  • It states the interest of the grantor, mortgagor or assignor in the vessel;
  • It states the interest mortgaged; and
  • It is signed and acknowledged.

Note that there is no requirement that someone filing a mortgage with the NVDC also file the underlying debt instrument on the mortgage; however, it should be clear from the registered documents that certain debt is secured by the vessel’s mortgage.

Priority Liens

Note that certain liens take priority over a mortgage secured by a vessel, even if such mortgage is duly registered with the NVDC. Those liens are:

  • For the wages of the master and the crew of a vessel and for any dockworker (also known as a stevedore) employed directly by a vessel;
  • For damages arising out of maritime tort;
  • Liens for general average; and
  • Liens for salvage, including contract salvage.

Are you involved in the maritime business? Work with a firm that understands your business. Contact the Kolodny law firm, a Houston-based maritime firm.

(image courtesy of Joseph Barrientos)

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