Preferred Ship Mortgage: What You Need to Know

The Preferred Ship Mortgage provides a lender or financier of a vessel competitive status among competing claims that might arise against a vessel. The U.S. Coast Guard acts principally as a recording agency in regard to mortgages and related instruments. It’s important to learn about it if you happen to finance someone’s ship after he/she obtains USCG documentation.

Making A Ship Eligible

The creation of a Preferred Ship Mortgage requires both eligibility requirements and documentation requirements. Among the eligibility requirements, the vessel owner must be a United States citizen and the vessel must be documented in the United States. Proper and effective documentation requires close adherence to time, place, and manner procedures. 

Since a vessel can have multiple mortgages on it, the financier must be sure that it is securing the “whole” vessel, including its appearances to be given “preferred” status. Further, a mortgage can cover more than one vessel. Most lenders and/or financiers will require a Ships Mortgage to secure the advance of funds since competition for your offerings can become fierce.

There may be various liens on a vessel and each lienholder hopes to collect its claim in full. However, maritime law assigns preference to the various liens, which means that some claimants in the distribution process will not be paid.

Preferred Ship Mortgage

What Is The Purpose Of The Ship Mortgage Act?

The Ship Mortgage Act sets forth the requirements for recording preferred ship mortgage, established that only maritime liens would have priority over ship mortgages, and provided for a means of enforcing preferred mortgage liens in admiralty.

How Can The Ship Mortgage Act Operate Against A Deficient Borrower

The lender may enforce its lien against the vessel itself in a federal court and bring an action against the vessel’s owner in either federal or state court. The Preferred Ship Mortgage itself will often contain a provision that empowers the mortgage holder to utilize self-help methods for repossessing the vessel upon default.

The vessel owner will probably receive a letter from its lender that identifies the default and how that default should be cured. It may also inform the borrower of its intent to foreclose on the vessel if the borrower is unable to cure its default. If the borrower remains in default, he or she should expect that the vessel will be arrested and repossessed. The repossessed vessel will then be sold in either a private or public auction/sale.

Preferred Ship Mortgage Under State Registration

Despite actually only federally documented vessels apply for Preferred Ship Mortgage, the United States Coast Guard has issued a Notice of Proposed Rulemaking which seeks to revise the conflicting USCG guideline by allowing for State titling laws modeled after the Uniform Certificate of Title Act for Vessels (“UCOTA-V”) to satisfy USCG certification requirements.

If the proposed change is implemented, States’ participation in the Identification System (a centralized database that relies on information provided by the participating States) would likely increase, and owners of undocumented vessels in States with titling laws patterned off UCOTA-V and participating in the Identification System would have access to preferred mortgages.

Apply For A Preferred Ship Mortgage Today

You can find the right form on our website to achieve a preferred ship mortgage for the cost of $185. You can also select any additional services you wish to have processed at the same time as an abstract of title or a certified copy of Certificate Of Documentation.

If you have any questions regarding a preferred ship mortgage, feel free to contact us at any time. We look forward to hearing from you.