Trade-in Traps to Avoid
When an old boat gets traded in for a new one, the only
things left behind with the old owner should be happy memories,
not an unpaid bank loan.
Sad to say, the excitement of trading in Old Faithful for Bigger
and Faster can overshadow important details, like verifying
that the trade-in’s loan has been satisfied, says Charm
Addington, vice president of BoatUS Finance and Documentation.
“Usually, people are so caught up in the new boat that
they assume everything’s been taken care of with the
old one,” she says. “There’s a lot of trusting
going on,” she said, when boat owners include a trade-in
when purchasing another boat.
says people who trade in boats assume that the dealer will
pay off their boat loan, but that sometimes doesn’t
happen. Their first inkling that something is amiss comes in
the form of a late payment notice from the lender or inability
to obtain financing because of bad credit.
an owner relinquishes possession of the boat and uses its
value as part of the basis of a bargain to purchase another,
this doesn’t eliminate the owner’s obligation
for the old loan.
To avoid problems, Addington recommends writing into the
purchase agreement a statement specifying that the dealer is
responsible for paying off the loan on the trade-in by a specific
date, usually no more than two weeks after the deal is consummated.
Even so, the owner should go one step farther and verify with
the lender that the loan has been paid off in full. This can
take a minimum of seven to 10 days for verbal confirmation,
but could take as long as a month for a written lien release.
“Many times, the consumer will just sign a power of
attorney” enabling the dealer to sell the trade-in, Addington
explains. This means that the owner gives the unsigned title,
or the boat’s registration papers in nontitling states,
to the dealer, who is thus given the authority to act for the
owner when the trade-in boat is sold.
obtain financing, also called “floor planning,” for
the boats they have in inventory. In the case of a trade-in,
floor planning gives the dealer the funds to pay off the loan.
In the past year, many major manufacturers have experienced
substantial drops in new boat sales figures. The reverse of
the proverbial high tide that floats all boats can also be
a severe low tide that pulls dealers down with it.
Addington says the slowdown in boat sales has her worried.
Tough economic conditions could make it tempting for some cash-strapped
dealers to wait as long as possible before satisfying loans
trading in boats need to understand that giving a dealer
power of attorney to sell a boat does not absolve them of
the loan obligation. While anyone can make payments on a
loan, regardless of whether they’re the borrower,
at the end of the day, the person whose name appears on the
loan agreement is liable for the loan and this is the person
the bank will look for when payments don’t come.
years ago, the Broward County, FL, Consumer Affairs Division
informed BoatUS of an ongoing investigation involving a
Dania boat dealer who failed to satisfy loans on at least
five different trade-ins. Pressure from the county agency
convinced the dealer to finally pay off the loans, in some
cases nearly a year late. Meanwhile, owners of the traded-in
boats said that the dealer’s actions dam aged their
failure to satisfy a loan can also have repercussions for
buyers of used boats.
a Texas boat owner reported to BoatUS that months after
he purchased a boat from a Lewisville, TX, dealer, he still
had not received the title and consequently could not register
or use the boat. He found out later that the dealer had not
paid off the boat’s original owner and the lender
wouldn’t release the title to the second owner.
laws prohibit the sale of goods that are encumbered by liens
or security interests, but this doesn’t necessarily
make it easy for the consumer. In the Texas case, the dealer
pleaded guilty to charges of theft and fraud, but both boat
owners, the buyer and the seller, were forced to sue the dealer
in civil court to recover their damages.
Boat purchases between private parties present a slightly
different set of challenges, according to Addington.
is required in 35 states and the District of Columbia, but
only 18 of those jurisdictions require either that the creditor
be noted on the title or that the creditor’s
security interest be filed with the boat titling agency. In
the case of federally documented boats, lien information recorded
with the U.S. Coast Guard documentation office may not show
up in state records.
said that when a buyer can’t obtain a vessel’s
title, it could be a sign that the loan hasn’t been paid
off. In the case of a lost title, the original owner can easily
apply for a duplicate. Most states charge a small fee for this
service. In any case, buyers should not proceed with purchases
until title or registration questions are cleared up.
that do not require titles — 16 do not — Addington
recommends including in the written sales agreement a statement
that the boat is sold “free and clear of all liens and
encumbrances.” Both parties, of course, must sign the
agreement and it should be notarized, she advises.
Because it may be difficult and time consuming for the average
buyer to track down liens against a vessel, Addington recommends
using a settlement service like the one offered by BoatUS,
which can help with purchase agreements, lien searches, loan
payoffs and transfer of ownership. BoatUS can even act as
agent and coordinate all transactions between buyer and seller.
Visit BoatUS.com/boatloans or call 800-365-5636 for
more information about the BoatUS Settlement Service.
your current boat’s value before negotiating
the trade-in value. Try to keep negotiations for the trade-in
value separate from the negotiations for the new boat.
The free BoatUS Value Check service (703-823-9550 ext.
3990 or BoatUS.com/buyer/valueform.asp) can give fair-market
values for used boats, which may be useful when making
a trade. Be aware, however, that trade-in values are
considerably less than market value.
the time of purchase, buyers of new boats should receive
a manufacturer’s certificate of origin or a builder’s
certificate, stating that the vessel has no prior retail
owners. Contact the boat manufacturer if you do not receive
and used boats are sold with temporary dealer registration
numbers that bridge the gap between purchase and registration
by the new owner. In some cases, the dealer takes care
of registration. If this process takes more than 30 days
to complete, contact the state boat registration agency.
Copyright BoatU.S. Magazine, January 2008