Boat-buyers who get that sinking feeling: Sellers can hide unpaid debts behind lax registration rules

MICHAEL AND Christine Haddock bought their second boat, Shizelle, in 1990 for pounds 61,000. The 31ft Fairline motor cruiser was moored at Ocean Village Marina, Southampton, and they envisaged many happy years of cruising around the Solent.

The couple registered the boat on the Small Ships Register after buying it. So they were horrified, early in 1992, when they received a letter from a finance company saying there was an undischarged mortgage of pounds 40,000 on the vessel. The Haddocks, it continued, would have to discharge this to get unencumbered title to the vessel.

Since then the boat has been 'arrested', and Mr Haddock has only been able to climb aboard for maintenance purposes, while the case goes through the courts.

Mr Haddock, who has run a fish-and-chip shop for 15 years, had no idea of this when he bought the boat in good faith from an established yacht broker. However, the previous owner had got into financial trouble and had sold the boat without first clearing the mortgage.

Mr Haddock's solicitor, Tim Reynolds of Dyer, Burdett & Co, explained: 'At present the legal position is that a bona fide purchaser of a vessel subject to an undisclosed marine mortgage is likely to be held liable for the outstanding mortgage, even though there is, at present, no system for publicly recording these in order to protect the innocent purchaser, save where the vessel is registered under Part I of the Merchant Shipping Act. This is rare because of the often disproportionately high expense of such registration for small pleasure vessels.'

The problem of pleasure-boat registration has been taxing a number of marine associations for some time. However, it seems that this year ideas are finally being floated in earnest in an attempt to rectify the situation.

The Royal Yachting Association (RYA) has had a number of members ring up for help on finding that a newly acquired boat already has a mortgage on it. The courts have usually found in favour of the finance company involved.

Gerry Eardley, legal secretary of the RYA, says: 'There is no problem in obtaining finance for purchasing a boat. Recently, finance companies have been so keen to lend money that they have not been sufficiently concerned with finding out whether the boat was free to be sold in the first place. I can recall half a dozen cases where new owners have been caught out and lost from pounds 20,000 to pounds 50,000.'

Edmund Wheelan, legal affairs manager for the RYA, says: 'We are not usually keen on encouraging something like registration, because it is more bureaucracy and incurs a further cost when buying a boat. But in this case we can see the need for setting up a simple, cheap but effective registration.

'We tried to start up a record of unregistered mortgages a few years ago. We had the hardware and the manpower, and we had a great deal of interest from the yacht brokers and the finance companies. However, it ran into apathy after 18 months, and none of the big four lenders would eventually sign up.'

Colin Sinclair of the yacht broker Michael Schmidt and Partners says: 'There is a registry of British ships, the Part I Registry, but this covers anything from the Queen Mary down to a 20ft yacht. It is laborious to fill in and costs anything from pounds 500 to do so.

'Many boats are registered and if they are, any existing mortgage will show up. When we sell a boat that is registered, we always get a transcript of the registry, regardless of what the owner tells us. But we sell many boats that are not registered. Probably about half our sales are not registered.'

Some years ago, French customs insisted that yachts sailing into their waters had to have identification papers. The RYA set up the Small Ships Registry, which, for a fee of pounds 10, gave you a piece of paper certifying your competence and ownership of the boat. 'It may be cheap and cheerful, but it is not worth the pounds 10. Anyone could apply and say they owned what they liked, without having to provide any evidence at all. The Part I Registry, on the other hand, is like trying to crack a walnut with a sledgehammer,' said Patrick Boyd, president of the Yacht Brokers, Designers and Surveyors Association.

Both the Part I Registry and the Small Ships Registry, which was administered by local registration officers around the country, have now been put under one central office in Cardiff - the DVLA, which also handles car licences.

'So even checking out the SSR will become slower and more difficult than it was when it only took a quick call by a broker to the local officer, but the SSR did not register outstanding debts,' Mr Boyd says.

He adds: 'When we prepare a bill of sale, we try to make clear to the seller that they are signing a piece of paper saying the boat is free from all encumbrances. But that doesn't deter a crook.'

Howard Pridding, secretary of the British Marine Industries Federation, said: 'We have traditionally been opposed to boat registration, for the same reasons as the RYA, but are coming round to the opinion that it is a good idea. We are working at present on a feasibility paper. It needs to be simple and cheap, but comprehensive.'

(Photograph omitted)