Untangling Title Issues in Yacht Transactions — When Brokers Need Legal Counsel
Buying or selling a yacht isn’t just about surveys and a sea trial. Title—whether state-registered or U.S. Coast Guard documented—can hide liens, tax exposure, or ownership defects. For California yacht brokers, knowing when a matter needs an attorney protects your client and your license.
Why Title Matters
- Hidden liens/mortgages: Preferred Ship Mortgages and marina/mechanic liens can follow the boat.
- Dual regimes: DMV registration vs. USCG documentation (NVDC) + county property tax.
- Entity ownership: LLCs/trusts improve liability and succession but complicate transfers.
Common Title Problems Brokers Encounter
1) Liens & Mortgages
Documented vessels may carry recorded Preferred Ship Mortgages. Other claims (marina storage, repairs) may be unrecorded. If they’re not cleared at closing, the buyer inherits the problem.
2) LLCs, Trusts & the “80% Rule”
Owners often place yachts into LLCs or trusts. California’s occasional sale exemption can apply when the transferor owns ≥80% of the entity immediately after the transfer. However, brokers aren’t tax counsel—poorly documented entity transfers invite scrutiny.
3) Sales/Use Tax Compliance (CDTFA)
The California Department of Tax & Fee Administration (CDTFA) enforces sales/use tax on yacht transfers. Even USCG-documented ownership changes trigger inquiries. Brokers must report brokered sales; attorneys acting solely as attorneys are not HNC “brokers” and do not have to report Sales/Use Tax and the duty is upon the purchaser to do it and it is important that they consult with an attorney to know what the risks are and what the consequences can be (we can assist with this and in the process frequently find ways to improve the transactions which very commonly have messy or inaccurate title documents upon arrival. Cleaning up title is essential to any transaction, something we do very well.
4) Multi-State Traps
Rules differ by state. Example: in Ohio, documented yachts typically avoid sales tax on private sales but must register with ODNR and pay county property tax. Multi-state closings benefit from legal review.
5) Defective Paperwork
Errors in a CG-1340 Bill of Sale or CG-1258 Application can stall or void documentation. Sloppy LLC resolutions or trust certificates cloud title and delay closing.
When a Broker Should Bring in an Attorney
- Transfers involving LLCs or trusts.
- Exemption claims (80% rule, out-of-state use, gifts/inheritances).
- Liens, disputed ownership, or payoff coordination with lenders.
- High-value yachts (e.g., $500k+).
- Out-of-state buyers/sellers or cross-border closings.
- Any CDTFA inquiry, audit, or notice of determination.
Protecting the Client—and the Broker
- Report brokered sales as required by the Harbors & Navigation Code.
- Use written contracts and maintain a clean document trail.
- Refer clients to counsel when a deal stretches beyond a straightforward bill of sale.
How I Help
I structure and paper yacht transactions so they’re clear, compliant, and defensible—coordinating USCG documentation (CG-1340/CG-1258), resolving liens, aligning LLC/trust documents, advising on CDTFA exposure and exemptions, and mapping state-specific registrations (e.g., ODNR in Ohio).
Contact
Christopher M. Brainard, Esq.
LawBrainard.com
651 N. Sepulveda Blvd., #2010, Bel Air, CA 90049
Tel: (310) 266-4115
Email: christopherbrainard@gmail.com
Consultations are available by appointment.
Disclaimer
This article/blog is provided for informational and educational purposes only and does not constitute legal advice. Reading this article does not create an attorney-client relationship between you and Christopher Brainard, Esq. An attorney-client relationship can only be formed through a written and signed agreement with Christopher Brainard. If you need legal advice about your specific situation contact us for a consultation. [Christopher Brainard, 651 N. Sepulveda Blvd., #2010, Bel Air, CA 90049. Tel: (310) 266-4115. Email: christopherbrainard@gmail.com].