(Spring 1999)

Marinas, boat yards, and other marine contractors who supply vessels with wharfage, repairs, fuel and other supplies (often referred to as “necessaries”), hold two very powerful means by which to collect their unpaid bills. The first is the remedy referred to in this article as the “Maryland Boat Lien Act”, which provides that a possessory lien arises the moment a marine contractor supplies the vessel with the necessaries requested by the owner. In the event the necessaries are not paid for within thirty (30) days of the date due, the marine contractor may foreclose his possessory lien by publishing the required notices, and then conducting a public auction of the vessel. The marine contractor’s lien and expenses in conducting the auction, will then be paid out of the proceeds of the auction.

Unfortunately, there are several drawbacks to the Maryland Boat Lien Act. The first is that the vessel must remain within the possession of the marine contractor. Once a boat is removed from the custody of the marine contractor, an auction sale may no longer be conducted. Another drawback is that the marine contractor’s lien may be subordinate to a purchase money mortgage on the vessel which is properly recorded with the State of Maryland (Department of Natural Resources) or with the U.S. Coast Guard (National Vessel Documentation Center). With respect to the federally documented mortgage, the lien will be subordinated even though the necessaries were provided to the vessel prior to the date that the mortgage was filed.

The second remedy arises under federal maritime law. In addition to a possessory lien under state law, at the moment the marine contractor provides necessaries to a vessel, he also obtains a federal maritime lien upon the vessel. This lien arises under the Commercial Instruments and Maritime Liens Act. Contrary to popular belief, a federal maritime lien is a “secret lien” which does not require the lienholder to “file” or to “record” the lien anywhere in order for it to be valid and enforceable. While a “Claim of Lien” may be filed with the National Vessel Documentation Center (“NVDC”), such filing is not required in order for the lien to attach. A federal maritime lien for the provision of necessaries arises in the same manner and may be asserted against both commercial vessels and vessels used solely for recreational purposes. Contrary to the state lien which requires continued possession of the boat by the marine contractor, the federal maritime lien will follow the vessel even after it has left the marine contractor’s custody. With a few minor exceptions, a federal maritime lien arising from the provision of necessaries to a vessel will be subordinate only to a preferred ship mortgage which was filed with the NVDC before the necessaries were provided to the vessel.

When a marine contractor’s bill remains unpaid and the time comes to initiate collection action, the facts of each case must be carefully examined in order to determine whether the best result can be achieved utilizing the state law auction procedure or federal maritime procedure. For example, assume that a boatyard, at the request of a boat owner, has recently provided the boat with repairs and wharfage totaling $25,000.00. The boat has a $25,000 balance remaining on its mortgage which is recorded with the Department of Natural Resources, but is not recorded with the NVDC. A yacht broker could probably find a buyer for this vessel at a price of $40,000.00 after several months of advertising and promotion. However, at a boat lien auction, the boat will only bring $20,000.00. Under this scenario, auctioning the vessel pursuant to the Maryland Boat Lien Act would not make any sense, since the $25,000.00 mortgage will have priority over the boatyard’s lien.

On the other hand, if the boatyard files suit in federal court to arrest the vessel under federal maritime law, the boat can be sold at an interim auction by the United States Marshal. Since the boat mortgage was not filed with the NVDC, the expenses of sale and the boatyard’s lien will have priority over the mortgage upon distribution of the auction proceeds. This is because a mortgage recorded only with the Maryland Department of Natural Resources does not rise to the level of a federal maritime lien as would a mortgage recorded with the NVDC. While many boatyard operators, familiar only with state law, would be unaware that they could “beat the mortgage” by enforcing their lien under federal maritime law, the savvy boatyard operator (or his attorney), who is familiar with federal maritime law, would not hesitate to file suit in federal court, arrest the vessel, force an interim auction, and recover the entire lien from the auction proceeds ahead of the mortgage.

Making choices such as these require knowledge and experience in maritime matters. There is no “best way” to collect upon a boat lien. Every case must be analyzed upon its own facts in order to determine which collection remedy will optimize the maritime lienholder’s recovery