Bank Goes Home Empty Without a Preferred Ship Mortgage

The U.S. District Court for the Southern District of Florida recently held that "Preferred Ship Mortgages" are indeed "preferred" in federal courts, in the case of The Home Savings & Loan Co. of Youngstown, Ohio v. Super Boats & Yachts, LLC. Home Savings had made a loan of over $400,000 for the purchase of a 50 foot long high performance yacht and recorded a security interest on the yacht's title under State law. After the borrower defaulted on the loan, the Savings & Loan company initiated State Court proceedings to recover the yacht, but while the case was pending, the yacht was bought by Super Boats. In response, Home Savings filed suit in federal court seeking to establish a maritime lien interest in the vessel and a right to sell the vessel at a judicial auction. 

The court dismissed the suit, holding that a creditor's lien under State law is equivalent to a "common mortgage," and does not give rise to a maritime lien. The court further noted that only vessel mortgages that meet the substantive and Coast Guard filing requirements of the Ship Mortgage Act can be enforced by federal courts. The case underscores the value – and limitations -- of the maritime remedies enacted through the Ship Mortgage Act and the Maritime Lien Act.

A copy of the court's decision is available via the attached PDF.