What's to stop a borrower from taking their boat out the country and defaulting?

[jmschmidt]

The answer...its call a "First Preferred Ship Mortgage" which is recorded at the National Maritime Center against a USCG documented, US flag vessel, to secure the loan. This is standard practice for lenders to the maritime industry. This pretty much guarantees that no one can get clear title to such a vessel without paying off the loan first. And no lender will lend a dime to the original owner without this mortgage. The lenders will require that they are a named insured on the insurance policy covering the vessel. Insurance companies will do a title search and discover the mortgage lien and will most likely refuse to insure the boat for anyone other than the owner of record. Without insurance you are not only dead in the water for going into just about every marina in the world, your are also dead in the water as far as selling the boat to someone else and pocketing the money. And if you attempt this in a foreign country you will probably do jail time. Other countries don't take fraud lightly like we do here in the US.

[jmschmidt]

Go ahead, make my day.

[jmschmidt]

It is a hell of lot different from financing a car. Cars and small boats are financed under the title theory of law and USCG documented boats and ships are financed in the US under the lien theory of law like most real estate. Some states use the title theory for real property by using a Trust Deed.

You can bet that most other countries have similar provisions.

[Zanshin]

My second boat was a bank repossesed one. The owner had purchased the boat in the U.K. and flagged it there under Part I. This is similar to a property or house and is titled and can be used as collateral for a loan, unlike the SSR in the U.K. which doesn't show clear title.
The owner had sailed to the Caribbean and decided that it wasn't necessary to make the monthly payments and the bank with the lien wasn't too keen about that and ended up repossessing the boat and putting it up for sale. At the time it was less than a year old and one of the bunks still had the factory coverings on it. I was fortunate in that the day the brokerage got the boat and before they even took any pictures or inventory I had sold my previous boat through them and asked about any good deals Since banks don't like to have repossessed items on their books they were willing to accept a good offer from me to get rid of it.

[PuttingDoctor]

Most lenders are looking for collateral for loans on boats. This keeps most owners honest.
When I saw this I remembered the senior mortgage company startups years ago. Many retired homeowners took advantage of them. They overstated market value and took the cash on refinance. The quote I heard from one of my golf club residents was, “I’m 73 years old. What are they going to do, ruin my credit score?”

[denverd0n]

Originally Posted by sailorchic34

You can't serve a court summons to a PO Box...

True. On the other hand, what you can do (if the money is enough to make it worthwhile) is hire someone to stake out the PO Box and serve the summons when the subject shows up to get their mail. I used to work for Pinkertons, and once spent four days sitting in my car outside of a Post Office in order to serve a summons. I knew another guy who watched for nearly three weeks before serving a summons. SOP, after issuing a summons like that, was to follow the subject to find out where they really lived.


As to the original question, this is why you see so many postings on this forum from people bemoaning the fact that they can't get a loan on the sub-$100k boat they want to buy. Getting those kinds of loans generally requires excellent credit and substantial other assets that the bank could attach.

[valhalla360]

Originally Posted by belizesailor

Actual case in point: $350K boat with about a 50% mortgage. Owner decided to try and skip out, or at least skip as long as he could, stopped paying the mortgage, sailed several countries away. He got away w this for about a year before the repo crew showed up. Boat was a mess when they found it, but they repaired it enough for the sail back. Boat was cleaned up & put up for sale at near market value. At a 50% LTV ratio it was definitely worthwhile to repo.

Generally, the bank can keep:
- Outstanding loan including any accrued interest
- Cost of Repo and foreclosure proceedings including paperwork and court costs
- In this case, cost of repairs would likely be recoverable.

Anything left after legitimate costs related to the loan...goes back to the boat buyer. Foreclosure isn't a get rich scheme for the bank. It only gets the loan covered plus expenses related to the foreclosure.

[belizesailor]

Originally Posted by valhalla360

Generally, the bank can keep:

- Outstanding loan including any accrued interest

- Cost of Repo and foreclosure proceedings including paperwork and court costs

- In this case, cost of repairs would likely be recoverable.



Anything left after legitimate costs related to the loan...goes back to the boat buyer. Foreclosure isn't a get rich scheme for the bank. It only gets the loan covered plus expenses related to the foreclosure.

Didnt intended to imply it was, but in this case and many it is worthwhile from the perspective of recovering principal and costs.

[cygnussailor]

Originally Posted by SirSailz

On their loan? Or even worse taking it to another country and selling it to someone else there while not repaying the lender?

I've worked in the financial industry for 8 years (non-bank and no boat loans obviously) but a guy I know suggested this could occur.

I've seen those mid-sized boats that I am guessing could sail across the Atlantic or Pacific, what exactly is there stopping someone from "buying" (mortgaging/loan) a decent sized $300,000-$1 million boat that is and just taking off from their country?

I can't imagine it would be cost effective to try to repo someone in that situation. Factor in that some of these boats can be put onto a large trailer and stored in an array of endless global warehouses, rented pieces of land with ocean access, for years when most lenders would wipe the loan from their books and have given it off to multiple debt collectors.

I don't know that much about how boats are titled, but I do understand that they can be titled to foreign countries the person has no connection to.

So couldn't the person just leave the country with the boat, alter the boat a little bit and claim to have built it them self and get a new title under a flag of convenience and sell it to an unsuspecting buyer in a third nation?

I feel like I am missing something in the mix here like here, that just seems way too easy for the borrower to get off the hook? I feel my question is kind of a dumb question and I am missing something very obvious.

Lenders will require most boats that are capable of crossing an ocean to be documented. If they leave the country and default on the loan they can be arrested anywhere the U.S. Coast Guard or Navy has a presence. That's a huge percentage of the world!


Gary

[jmschmidt]

The US Government sends Social Security checks to thousands of known criminals overseas and in prison. If you paid in to it, you get back.

[jmschmidt]

Nonsense, a summons can't be served to a Post Office box.

[KTP]

Originally Posted by jmschmidt

The US Government sends Social Security checks to thousands of known criminals overseas and in prison. If you paid in to it, you get back.

Pretty sure those can be garnished though right? In the case of a court judgement?

[denverd0n]

Originally Posted by jmschmidt

Nonsense, a summons can't be served to a Post Office box.

I don't think anyone said that a summons could be served to a PO Box. In fact, one person said it cannot be, and I said that is true.

Originally Posted by KTP

Pretty sure those can be garnished though right? In the case of a court judgement?

Absolutely they can be. Yes, lots of criminals in prison receive Social Security checks, but lots of people (criminals, as well as others) also do NOT receive Social Security checks because they have been garnished.

[jmschmidt]

Qualified retirement plan payments can not be garnished, ask O. J. Simpson, he has a $35 million judgment against him but he still gets his NFL pension.

Income that can NOT be garnished: TANF, GAU, SSI, SSDI, SSA, Food Stamps, child support, pension, etc.

[sailorchic34]

Originally Posted by denverd0n

True. On the other hand, what you can do (if the money is enough to make it worthwhile) is hire someone to stake out the PO Box and serve the summons when the subject shows up to get their mail. I used to work for Pinkertons, and once spent four days sitting in my car outside of a Post Office in order to serve a summons. I knew another guy who watched for nearly three weeks before

if you're, for example, perhaps a liveaboard/anchor out boater who only checks their po box every 2-3 months, it gets a tad harder to serve. I mainly have my PO box to handle government stuff, yearly Taxes, boat insurance, etc, that only comes due once a year. Really it's just for taxes. Everything else is done online. Even my driver's license lists my PO box, and has since the Great Recession. I haven't had a physical address in 15 years.

While you do need insurance to rent a monthly slip, most Marinas, at least on the West Coast, don't ask for any identification, for a few days at a guest slip.

Is it easy to do, No. But it's not that hard either.