How to Sell a Boat With a Loan

Selling a boat with an outstanding loan is a common process that many owners navigate successfully. A lender holds a financial claim on your vessel, requiring specific steps for a smooth transfer of ownership. Understanding these procedures before listing your boat can help you prepare and avoid delays. This guide outlines the necessary actions to sell your boat, ensuring a clear transaction for both you and the buyer.

Understanding Your Loan and Lien

A lien represents a legal claim a lender places on your boat, granting them a right to the vessel until the debt is fully repaid. This claim ensures the lender’s security interest in the asset. For many financed boats, this takes the form of a “preferred ship mortgage,” recorded with the National Vessel Documentation Center (NVDC) for federally documented vessels, or noted on the state-issued title.

Before selling, obtain an accurate loan payoff amount from your lender. Request a “10-day payoff quote” or “payoff letter,” which provides the precise sum required to satisfy the loan, including any accrued interest and fees. This figure is crucial because the lender holds the boat’s title until the loan is paid in full. The lien must be formally released by the lender to enable a clear transfer of ownership.

Preparing for the Sale

Determining a realistic sale price for your boat is a primary consideration, especially with an outstanding loan. Researching comparable vessels helps establish a competitive price that ideally covers your remaining loan balance. If the sale price is less than the loan amount, be prepared to cover the difference to clear the lien.

Gather all relevant boat documentation beforehand to streamline the selling process. This includes current registration and maintenance records. The Hull Identification Number (HIN) is an important identifier for the vessel. If a boat trailer is part of the sale, its title and Vehicle Identification Number (VIN) should also be available.

Communicate with your current lender early in this preparatory phase. Discuss their specific procedures for handling a sale and releasing the lien. Lenders often have established protocols; some require the loan to be paid off completely before releasing the title, while others facilitate a direct transfer of funds during the sale.

Executing the Sale Transaction

Several methods exist for handling the loan payoff during the sale.

Buyer Pays Lender Directly

One common approach involves the buyer directly paying the lender. The buyer typically issues two separate payments: one for the outstanding loan balance directly to your lender, and another for the remaining purchase price to you. This method often requires coordination with your lender to ensure the funds are verified and properly applied.

Using an Escrow Agent

Another option is to utilize an escrow agent or a marine title company to facilitate the transaction. A neutral third party holds the buyer’s funds, verifies ownership, conducts lien research, and then distributes the funds to pay off the loan and any remaining balance to the seller. This service provides security and professional handling for both parties, though it typically involves additional fees.

Paying Off the Loan Yourself

Alternatively, you might choose to pay off the entire loan balance yourself before listing the boat for sale. This approach simplifies the transaction for the buyer, as you will possess a clear title free of any liens. After the loan is paid in full, your lender mails the original title and a “Satisfaction of Mortgage” document, allowing for a more straightforward sale.

Bill of Sale

During the transaction, a Bill of Sale is a document that legally transfers ownership. This document should detail the agreed-upon purchase price, a description of the boat including its Hull Identification Number (HIN), and contact information for both the buyer and seller, along with their signatures. Many states require a properly executed bill of sale for registration and title transfer purposes. A temporary registration might be issued by the relevant state agency, allowing the buyer to operate the boat while permanent processing is completed.

Ensuring Lien Release and Title Transfer

Once the boat loan has been paid off, confirming the official release of the lien is the next important step. Your lender should provide a recordable lien release document, often referred to as a “certificate of satisfaction” or “satisfaction of mortgage.” For vessels documented with the U.S. Coast Guard, a specific “satisfaction of mortgage” form must be filed with the National Vessel Documentation Center to officially clear the federal lien.

The original title, likely held by the lender, will then be processed. It will either be sent directly to you, or in some instances, directly to the appropriate state agency. You, or the new owner with your assistance, will then apply to the relevant state agency—such as the Department of Natural Resources, Department of Motor Vehicles, or a state’s Fish and Boat Commission—to have a new title issued in the buyer’s name.

Verifying that the new title is clear of any liens and accurately reflects the buyer’s ownership information is a final, important check. Title transfer fees are common, and late fees may apply if the transfer is not completed within a state-specified timeframe. Additionally, sales tax will likely be due at the time of registration or title transfer.