A little about U.S. Coast Guard Documentation.

The term "secured lending," suggests its meaning. It provides that the lender has certain rights and remedies that reduce the implied risk in making a loan. In this type of loan, the borrower grants the lender a right of possession to some property of value in the event that the borrower meets the terms and conditions of the promissory note. In marine lending, it is the actual boat being purchased which is secured as "collateral". One of the many factors that affect interest rate on a secured loan is the lenders ability to "secure" interest in the collateral. The stronger the method of recording, the lower the lender's rate is likely to be.

As consumer lending began its vast expansion in the American economy in the sixties and seventies, lenders sought ways to make loans on high-ticket items such as private airplanes and pleasure boats. The existing models for recording a security interest in the property being purchased were home mortgages, and automobile loans. Real property deed recordation systems based on "ancient" law were effective for recording security interest in home purchasing, and all 50 states had automobile titling systems allowing reciprocal enforcement of lender interest in autos as collateral.

Today, there are still only 33 states that have boat titles, and in the seventies, when consumer marine lending really began, fewer than half the states had boat title systems. Lenders turned to the U.S. Shipping Code and the Preferred Ship Mortgage Act of 1920 as a vehicle by which security interest in the boat could be perfected. Having roots in 300-year-old Admiralty Law, and shipping instruments known as "bottomry bonds", the Federal laws provide for a system administrated by the U.S. department of Transportation, United States Coast Guard in which boats are registered and mortgaged. This is called U.S. Coast Guard boat Documentation.

Marine lenders are particularly fond of this method of recordation, since the Coast Guard "Abstract of Title" is an inviolable public recording of any and all legal engagements of the boat. In addition, under the umbrella of Maritime Administration treaties throughout the world, a Preferred Ship Mortgage is enforceable not only in all 50 states, but in most foreign waters. And the Owner's Certificate of Documentation identifies the boat as a flag boat of the U.S. Fleet entitled to all the rights and courtesies of any U.S. boat on the high seas. It also serves as a boat's legal identification in all foreign ports. Not only does this provide a level of security above all others for the lender, but also it actually enhances the value of the boat somewhat due to the clarity of title. For these reasons, most marine lenders say, "If it can be documented, it should be!"