Skip to main content

Bank Loses Its First Preferred Ship Mortgage Status


In the case of BRANCH BANKING & TRUST CO. of VIRGINIA v. M/Y "BEOWULF," 23 Fla. L. Weekly Fed. D285a (S.D. Fla.  June 7, 2012) (Hurley, J.), a bank filed an in rem admiralty action to foreclose a first preferred ship mortgage claimed by mortgagee bank on defendant vessel, which was assigned second identification number after execution of mortgage, documented under different name, and sold to third-party purchaser for value, all without notice to bank. The third-party purchaser for value claims competing ownership interest in defendant vessel as subsequent innocent purchaser for value. The court found that the mortgagee bank is not entitled to preferred ship mortgage status under Ship Mortgage Act because the mortgage was invalid to create a security interest in defendant vessel where mortgagor did not hold good and valid legal title to vessel on day he executed the mortgage. The court reasoned that only a valid mortgage is eligible for preferred status under Ship Mortgage Act.

The court also found that notwithstanding mortgagor's failure to permanently affix the HIN to vessel in violation of federal law at time of application for initial issue of certificate of documentation, substantial compliance with recordation requirements of Ship Mortgage Act is adequate to show eligibility for preferred status, where there was no evidence of fraud or purposeful intent to evade or mislead on part of mortgagee. Irregularities in recorded mortgage documents or failure to comply with the minutiae of recording will not result in loss of preferred status of mortgagee where there is “honest and substantial compliance” with recordation requirements of Ship Mortgage Act. As a result, the court found that the bank's conduct justifies the equitable subordination of its claimed preferred ship mortgage to interest claimed by third-party purchaser for value gross, where the bank deviated from acceptable banking practices when it decided to forego a declaration of default on loan and granted a five-year extension of loan term without inspecting or reevaluating the collateral or insisting on proof of insurance and where bank failed to insist that mortgagor permanently affix the HIN on the vessel before initial documentation.The court noted the bank's handling of the loan to be "the product of egregious, reckless lending practices."

Thus based on the court's findings, it ruled that the mortgagee bank's complaint to foreclose a First Preferred Ship Mortgage was denied; entered  Final judgment is entered against the mortgagee bank and in favor of the third-party purchaser, which took the vessel free and clear of any mortgage liens claimed by the Plaintiff; and reserved jurisdiction to tax costs in favor of the third-party purchaser.

This is lengthy decision that is worth reading. The decision details the facts of the case, including the various security agreements involved, includes a discussion into the requirements of the Ship Mortgage Act (which is good reading for anyone regularly engaged in preferred ship mortgages), title and ownership issues, the legal theory of equitable subrogation, and what is required of a bank seeking preferred status under the Ship Mortgage Act. If you are interested in receiving a copy of this decision, please feel free to write to me at mov@chaloslaw.com and I would be more than happy to send you an e-copy of this decision at no charge to you.


Comments

Post a Comment

Popular posts from this blog

ReThink + ReUse Center "It's How We Roll" Fun Raiser -- Bowling Night -- October 16, 2014

As many of my readers may be aware, I am the Chair of the ReThink + ReUse Center, a non-for-profit educational and environmental Center in Miami educating children into rethinking reuseable materials for learning through play. The ReThink and ReUse Center’s Quality Play is Learning Program provides a series of educational and participatory workshops based on the philosophies of Reggio Emilia and Harvard's Project Zero Visible Thinking. The Children’s Trust is the major funder of this program, but the Center is required to continually fundraise for the balance its annual budget.   The Center is having a fun event you are invited to--the ReThink + Reuse Center’s “It’s How We Roll” bowling event on October 16, 2014 at Splitsville Luxury Lanes from 18:00 to 21:30 hours. My firm, Comcast and Waste Management are major sponsors for this event, but we could use a few more sponsors. If you are interested in sponsoring the event, please let me know by reaching me at mov@chalos...
6 comments
Read more

Maritime Law--Florida's Arbitration Code Is Now Revised

Those of us that practice maritime law regularly must always be on the lookout for the contract that may contain an arbitration clause. Thus, any laws related to arbitration are important to those of us practicing in this sector.       The Florida legislature has revised the Florida Arbitration Code ("FAC") and named it the Revised Florida Arbitration Code (the " Revised Act"). Since 1967, the FAC had gone mostly unchanged. The Revised Act addresses concepts that were not addressed in the old law, such as the ability of arbitrators to issue provision remedies, challenges based on notice, consolidation of separate arbitration proceedings, required conflict disclosures by arbitrators, among other major changes. The Revised Act lays out a detailed framework for international arbitration conducted under Florida law and repeals sections of the FAC. The Revised Act spells out what experienced arbitrators knew the case law to be, but codifies it all in one pl...
4 comments
Read more

Maritime Law--Lozman Case Revisited in Miami?

In Hoefling v. City of Miami , Case no.: 14-12482 (11th Cir. Jan. 25, 2016), the U.S. Court of Appeals for the Eleventh Circuit revived almost all of Hoefling's claims. You ask, "Who is Hoefling?" Hoefling  lived on his sailboat Metis O moored off Dinner Key for nearly a decade—until the day he came home and it was gone. About three months earlier, an officer from the Miami Police Department's Marine Patrol Detail tagged Hoefling's vessel for lacking a sanitary device and a working anchor light. He had a deal to use the facilities at the nearby marina but quickly went out and reportedly bought what he needed to comply. Three months later while he was on a business trip, the City of Miami seized and destroyed his boat and all his belongings. As a result, he was homeless. He sued under § 1983, maritime law, and state law. He stated a claim under the Fourth Amendment for seizure and destruction without notice or cause and a “taking.”    At the ...
5 comments
Read more