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Knowing the Waters – Boats and Liens

By Frank Chmelik and Brian Nadler of Chmelik Sitkin & Davis, P.S. –  March 2019

This month’s column focuses on delinquent port district marina charges and boats that are subject to a bank security interest.  This scenario can present a real challenge to port districts.

There are two different port district powers to address the issue of a deadbeat boat owners and their boats in the port district’s marina.

RCW 53.08.320 allows a port district to adopt rules allowing the chaining and seizing of vessels, their removal and storage and their eventual sale for the charges incurred.  This statue provides for a process whereby the boat is seized, notice is provided, and ultimately the boat is sold to pay the port charges.  If the boat is auctioned with no bidders, the port district owns the boat.

Chapter 79.100 RCW has a broader application to all aquatic lands within a port district, but for the purposes of our discussion, we focus on boats in marinas.  RCW 79.100.030 allows a port district to “store, strip, use, auction, sell, salvage, scrap, or dispose of” an abandoned boat found in its marina.  The definition of “abandoned”[1] includes a boat that has been moored in a marina in violation of the rules (such as paying rent) for 30 consecutive days or a total of 90 days in any 365-day period. Notably, chapter 79.100 RCW does not apply to boats that only fail to pay for upland storage only. This chapter also provides for a process where the notice is first provided and then a boat is seized by the port district.

Boat Liens.  There are two types of security interests in boats.  For state documented boats (those bearing state registration umbers – here in Washington, “WN” numbers) the bank is shown on the title as the “legal owner” just like on an automobile title.  For federally documented boats (boats over 30 feet without state registration numbers), the security interest is called a “preferred ships mortgage”.

The Boat Lien Problem.  A port district can encounter a problem when the port district properly seizes a boat (either under RCW 53.08.320 or chapter 79.100 RCW) and the boat is subject to a federal or state lien.  In those instances, the port district can only sell the boat “subject to” the amount owing the bank under the lien.  This means the buyer takes title subject to the lien and the bank can step in and seize the boat.  Depending on the amount due and the condition of the boat, no one will buy the boat because of the lien.  The port district ends up with title to the boat but is also subject to the lien.  The boat is essentially unsaleable. In these instances, there are several steps that a port district should consider:

  • Give notice of the sale to the bank in the same manner as the notice is given to the boat owner.
  • Contact the bank and the owner (if they can be found) and see if a deal can be made. Sometimes banks will pay the charges and take the boat.  Other times, the bank and the port district will strike a deal which allows the port to sell the boat at auction, recover its marina fees and sale costs and then provide the balance (up to the loan amount) to the bank. The bank may argue for some other apportionment of the balance of the proceeds.  In exchange for agreeing to share the sale proceeds, the bank must agree to release its lien so the buyer at the auction receives title free and clear of the bank’s lien.  If the owner is involved and refuses to consent to the arrangement, the balance may have to be deposited in the registry of the court for the bank and the owner to argue about.
  • If the bank will not agree, conduct the sale anyway and see if someone will buy the boat subject to the bank’s lien.
  • If no one buys the boat and the bank won’t budge, then the port district’s only remaining course of action is to destroy the boat or perhaps strip the boat of valuable parts. But before the boat is actually crunched or stripped, the port district should again get in touch with the bank and see if a deal can be had.  The bank may be more willing to deal after a sale has yielded no buyers and the port district is intending to destroy the vessel.  Of course, destroying the boat is not an optimal result because the port district will have lost its moorage fees and will incur the costs of destroying the boat.  However, there is really no other alternative save the port district keeping the boat and using it for its own purposes.

The overall advice here is twofold.  First, don’t let boats build up large moorage and other port charges before acting.  It only makes a problem worse.  Second, disposing of boats with liens is a complex area of law that can have legal exposure if not done correctly so this is one area where a port district needs to consult counsel if anything is unclear.

[1] Chapter 79.100 RCW also applies to “derelict vessels”, but that discussion is left for another column.