The Uniform Law Commission has recommended a model state vessel titling act. The Act does 4 things:
- Allows undocumented state-titled vessels to secure Preferred Ship Mortgages
- Brands the titles of vessels who have suffered hull damage
- Unifies procedures and titling laws among states
- Brings state titling laws in line with UCC Articles 2 and 9
Virginia just became the first state to introduce the Act; SB-1117 was passed by the Senate on Jan. 30, 2013 and is currently sitting in House committee.
In general the Act is about codifying best practices for titling vessels, and making sure the requirements for all states are the consistent.
Only 34 states have titling laws in the first place, and those that do vary greatly, so that some gaps and duplicities exist which allow for fraud. For example, at present a 17-foot dinghy might be a vessel requiring title in one state, but another state may refuse to title boats of that length; this creates friction in the sales transaction and opportunities for fraud and theft. The process of titling under the Act remains virtually unchanged, and shouldn’t create any new burdens on the state or boat owners. Normal exemptions for state titling apply, for example dinghies and stationary floating structures.
The big win in the Act is for vessel lenders, and hopefully borrowers as well. Currently only USCG documented vessels are eligible for Preferred Ships’ Mortgages (only 1% of US vessels are documented). But under 46 USC 31322 (d)(1), state-titled undocumented vessels may be eligible for PSM’s if the state’s titling law satisfies applicable federal requirements and is approved by the Coast Guard. This was done to encourage states to participate in the Coast Guard’s Vessel Identification System (VIS). A number of states participate in VIS, but no state so far has attempted to clean up their titling law to gain CG approval. The purpose of the Act is to provide a ready-made law that the CG will approve. The CG hasn’t formally approved the Act yet, but the drafters are under the understanding that they will, as it complies with all requirements. Theoretically, states which adopt the act will have a competitive advantage because their marine lenders will be able to secure PSM’s, while other states will not. It’s easy to see why various marine financing associations are supporting the Act.
Boat buyers and sellers should also benefit from the uniformity and record-keeping aspects of the Act. Transaction costs on interstate transfers should go down because of the uniformity of procedures, documentation, etc. Better record-keeping in the VIS database theoretically means it’s easier to make sure the boat you’re buying is legit, and harder to sell a stolen boat. Additionally, the drafters are hopeful that once the titling process is standardized, the VIS database for state-titled vessels will be opened to the public.
The title branding requirement is probably the most contentious part of the Act. It means that a vessel which has suffered hull damage – even running aground could count if the hull’s integrity is compromised – must indicate the hull damage on the title. The model Act’s forms show a simple checkbox to indicate that the vessel has suffered hull damage, no opportunity is given to explain what sort of damage or how serious. The brand remains on the title forever, even if title goes to another state or the damage is repaired. The owner of record is responsible for compliance with this provision, and the fine for noncompliance is $1,000.
Dealers and brokers will generally be exempt from the branding requirement because they typically are not owners of record for the vessels they sell. Some are worried that vessels with the “scarlet letter” brand on their title will be difficult or impossible to sell, but more disclosure should be a good thing for boat buyers, especially in the case of boats damaged by hurricane, fire, sinking, etc. I predict that this portion of the Act will be the sticking point in state legislatures, though if the Coast Guard will approve (for PSM purposes) a state’s law with the branding provision removed, it shouldn’t be an issue.
Finally, the Act updates antiquated state titling acts to reflect UCC Articles 2 and 9, which all but one state have adopted. Most state title acts were written pre-UCC and this creates discord between those acts and state laws on sales and security interests. UCOTVA specifically references the UCC and brings state titling in line with it. As with most Uniform Acts, helpful interpretational comments are also provided.
Disclaimer: This article is intended as a resource to boaters and does not constitute legal advice. Legal issues involving vessels are complex matters and you should speak to a qualified attorney to discuss your specific concerns.
Todd Lochner practices admiralty law in Annapolis, Maryland. Visit www.boatinglaw.com.
