When you think of buying a boat, the process might seem straightforward. However, buying a boat with a lien can introduce complexities that may cause confusion. A lien means that the seller owes money on the vessel, and the lender holds a legal claim on it.

This guide will walk you through the steps you need to take when buying a boat with a lien, helping you avoid unnecessary risks and ensuring that the boat is free of legal entanglements. It is important to understand the procedures before making a purchase, particularly if you plan to buy from a private seller.

What Is a Boat Lien?

A boat lien is a legal claim placed on a vessel by a lender or service provider to secure a debt. This claim can arise from loans taken out to purchase the boat or from unpaid services such as repairs, maintenance, or docking fees.

The lienholder has the right to seize and sell the boat if the debt is not paid. When you buy a boat with a lien, you are taking on the responsibility of settling that debt. This is why understanding the lien process is key before you make any transaction.

Understanding the Types of Boat Liens

Before moving forward with buying a boat, it is important to understand the different types of liens that could be placed on a vessel. Some liens are more complex than others, and some may impact your purchase more significantly.

Preferred Ship Mortgage

A preferred ship mortgage is a federally recorded lien that secures a boat loan. The lender files the mortgage with the National Vessel Documentation Center (NVDC). This is one of the most common types of liens found on boats that are financed through a bank or other lending institution.

Hidden Liens

Hidden liens are claims that may arise from unpaid obligations, such as crew wages or maintenance costs. These can be more difficult to uncover, as they might not be publicly registered. If you are buying a boat with a lien of this type, extra care is required to ensure the lien is cleared before purchase.

Necessary Liens

Necessary liens stem from services that were essential for the upkeep of the vessel, such as towing, repairs, and dockage. These liens can often be more difficult to remove, as they are tied to essential maintenance.

Maritime Liens

Maritime liens automatically attach to a boat when specific circumstances arise, like crew wages, salvage operations, or damages caused by the boat. These liens carry weight in maritime law and must be addressed before transferring the vessel to a new owner.

Judicial Liens and Tax Liens

Judicial liens come from court orders, typically when a judgment is made against the boat owner in a lawsuit. Tax liens are placed on boats when taxes are unpaid, and the government seeks payment through the sale of the vessel.

How to Buy a Boat with a Lien on It: Key Steps

Research the Boat’s History

The first step in buying a boat with a lien is to research its history. Verify the boat’s Hull Identification Number (HIN) and run a background check. This is an important part of the process because it allows you to identify any liens attached to the vessel and check for any past accidents, theft, or damage.

Running a search through a service like Boat-Alert can provide you with valuable information about the boat’s history.

Obtain a Written Payoff from the Lender

Once you have identified the lien on the boat, contact the lender. You will need a written statement outlining the amount owed to clear the lien. This document should include the payoff amount, the loan terms, and any other details about the loan. In most cases, the seller will need to sign a written notice confirming the sale and the transaction’s details.

Hire a Lawyer or Boat Broker

A lawyer or a boat broker with experience in lien removal can help guide you through the process. They can provide legal advice and ensure that the transaction is completed properly. If you are unfamiliar with the legal intricacies of buying a boat with a lien, consulting with a professional is strongly advised.

Contact the Lender Directly

In cases where the lienholder is a bank or financial institution, you will need to work with them to settle the debt. Typically, the lender will want the full payoff amount before they release the lien. Once the lien is satisfied, the bank will issue a lien release document, which allows you to move forward with the boat transfer.

If the seller is responsible for paying off the lien, the lender will send you the lien release and update the boat’s title information to reflect the removal of the lien. Be sure to request that the release be sent directly to you so you can finalize the deal.

Get the Boat Insured

Before proceeding with the purchase, it is important to insure the boat. While it may seem unnecessary, this is a precaution that protects your investment in case something goes wrong during the transfer process.

A good insurance policy will safeguard you against unexpected events, including potential damage or loss during the boat’s transition to your ownership.

Check the Boat’s Registration

Verify the boat’s registration and title status with the local boating agency. This ensures that there are no outstanding fees, fines, or taxes that could prevent the transfer of ownership. Be sure to check both the current registration and any associated liens with your state’s boating agency.

If the boat is USCG documented, make sure there is a satisfaction of mortgage record on the Boat Title Abstract. The registration status will help confirm the lien’s validity and ensure there are no legal issues with the vessel.

Finalize the Deal and Pay the Lender

Once you have cleared the lien, finalized the paperwork, and secured insurance, it is time to complete the transaction.

You can either pay the lien directly to the lender or pay the seller with the condition that the seller clears the lien with the bank. If the seller has not paid off the lien by the time you pay them, you may need to cover the costs to settle the debt.

Once payment has been made, the lienholder will release the lien, and you will receive the necessary documents to transfer the boat’s title into your name.

Getting a Notarized Bill of Sale

In a private sale, it is essential to have a bill of sale to finalize the transaction. This document serves as proof of purchase and protects both the buyer and the seller in case of future disputes. Make sure the bill of sale is notarized to avoid complications.

Title Transfer: Verifying Ownership

Once you have received the lien release and a notarized bill of sale, the next step is transferring the title. Make sure the title reflects your ownership and that all information is accurate. If the seller is unable to transfer the title, you may need to arrange for a Power of Attorney (POA) to sign on their behalf.

What If the Boat Is in Another State?

If you are buying a boat from a private seller out of state, the process can be a bit more complicated. It is recommended to inspect the boat in person before finalizing the deal. Conduct a sea trial and carefully examine the boat’s condition. Once you are satisfied with the condition of the vessel, meet with the seller and their bank to confirm the payoff amount.

Have the bank release the boat title and transfer the vessel. Once you have completed the transaction, transport the boat to your home state. Depending on your state’s regulations, you may need to file additional paperwork with your local registration office.

Registering the Boat After Purchase

After the boat is in your possession, the final step is registering it. Make sure to check your state’s specific registration requirements and confirm that the title and bill of sale are in order. Depending on your location, registration fees may vary.

If the boat is over 5 tons or 25 feet, you will likely need to document it with the U.S. Coast Guard. However, this process will depend on the boat’s size and the state’s regulations.

The Importance of Due Diligence When Buying a Boat with a Lien

Buying a boat with a lien on it is not something to be taken lightly. The process requires thorough research and careful decision-making. Doing a complete background check on the boat, contacting the lender, and ensuring all paperwork is in order will protect you from potential legal or financial issues down the road.

Avoiding shortcuts and ensuring that all steps are followed correctly will save you time, money, and frustration. The right preparation makes a big difference when it comes to securing a vessel that is truly yours, free of any hidden obligations or debts.

Navigating the Process of Buying a Boat with a Lien

Buying a boat with a lien on it can be a straightforward process, but it requires careful planning and attention to detail. From researching the boat’s history to clearing the lien with the lender, each step is important in ensuring that the transaction goes smoothly. With the proper documentation and assistance, you can successfully navigate the process and secure your boat.

At Pier 105, we understand the challenges of purchasing a boat with a lien and are here to guide you through every step. If you are looking for boats for sale or need more information, visit our showroom and let us help you make a safe, informed purchase. Feel free to contact us with any questions about your next boat purchase.