How to pay for your boat

[Bluewaters2812]

Another big question I have whilst we are preparing for our dream is... how does one arrange payment for the boat (now I hope I don't get silly responses). We are US non-residents and want to be able to be true "cash" buyers and thereby improve our bargaining ability.

I know very little about Escrow accounts but do know that this is the route to go for our US property purchase. Can this same system be used for buying a boat?

Another thought is this: At what point are all of the funds fully released to the seller and are the funds retained by us or placed in to Attorney's Trust account until all conditions have been met?

We are especially interested in the responses and different experiences of those who have already been through all of this as US non-residents.

[Zanshin]

The brokers will perform the escrow during a boat sale transaction. Remember that you cannot register the boat in the USA as non-citizens, but you can re-flag the boat quite easily (well, the brokers will do that for you as well).

I've done 2 boat transactions as a non-us citizen on us-flagged boats and the paperwork was simple in both cases and the broker ensured that the right forms went to the right offices at the right time.

Going to a red ensign from a us-documented boat will most likely require that a YBDSA tonnage survey is done. There are few accredited surveyors in the USA but it will be possible to get one sorted out - in my case I didn't use the US surveyor since they demanded that the boat needs to go out of the water for the survey and all of the U.K. forum members plus U.K. surveyors stated that it wasn't needed, so I ended up using the 6-month grace period for the survey and having it done in the BVI instead of in the USA.

[Bluewaters2812]

Originally Posted by Zanshin

The brokers will perform the escrow during a boat sale transaction. Remember that you cannot register the boat in the USA as non-citizens, but you can re-flag the boat quite easily (well, the brokers will do that for you as well).

I've done 2 boat transactions as a non-us citizen on us-flagged boats and the paperwork was simple in both cases and the broker ensured that the right forms went to the right offices at the right time.

Going to a red ensign from a us-documented boat will most likely require that a YBDSA tonnage survey is done. There are few accredited surveyors in the USA but it will be possible to get one sorted out - in my case I didn't use the US surveyor since they demanded that the boat needs to go out of the water for the survey and all of the U.K. forum members plus U.K. surveyors stated that it wasn't needed, so I ended up using the 6-month grace period for the survey and having it done in the BVI instead of in the USA.

I am not sure that your information is correct (or at least the info you were given when you bought). A US non-resident can State register the boat in the US. Secondly, a survey is only required if you import the vessel into the EU/UK.

My questions about the actual funding still remain though.

[carstenb]

You can put the money in escrow, either at the broker (if you buy through one) or at an attorney. How much remains in escrow for how long? Depends mostly on what decide, and what you can reach agreement with the seller for.

A typical example would be 10% deposited as earnest money, survey done, sea trials etc. rest of the amount then due, unless you can negotiate some of it remaining in escrow as guarantee.

[David_Old_Jersey]

Originally Posted by Bluewaters2812

I am not sure that your information is correct (or at least the info you were given when you bought). A US non-resident can State register the boat in the US. Secondly, a survey is only required if you import the vessel into the EU/UK.

I think Zanshin was referring to a (Tonnage / Measurement) Survey being required for Red Flag / Part 1 UK boat registration. Nothing to do with importing the boat (the boat does not even need to be in the UK / EU to get on the UK part 1 register - and simply being on that register does not mean the boat is imported (so no tax / VAT / RCD implications)....in practice probably as simple to get on the SSR, even if only as an interim measure as it's cheaper / quicker and no Survey requirement - the only requirement is to be a UK resident, passport and boat location immaterial).

My questions about the actual funding still remain though.

Personally I would use a Lawyer rather than only a Broker to hold the funds in Escrow (others will disagree!).

The important thing with anyone holding funds in Escrow is you have to be comfortable that a) they will deal with the funds strictly in accordance with the agreements signed b) that they won't simply b#gger off with the money! and c) if they do b#gger off with the money (or it simply gets hung up or dissapears? into their own financial problems) that you have some recourse, in practice as well as in theory!

What happens to the funds in Escrow depends on what the agreements you sign say will happen. The idea is that initially the Escrow Agent is holding the funds 100% for you, but once certain conditions (under the agreement are met) that the money is then held for the Vendor. The benefit of an Escrow Agent is that the Vendor knows the cash is actually available and can be transferred to him instantly (without actually moving money!). In addition the Vendor can sign up the Bill of Sale (and whatever other documents are needed) in advance and pass them to the Escrow Agent to also hold in Escrow (i.e. they do not become effective until the deal completes). The benefit for the buyer is that he knows in advance all the documents are good to go before the money is released.....The Escrow Agent is effectively a neutral referee for the deal, ideally not also wearing another hat for either side (like a broker who has a finanical incentive to complete the deal).

I am not familiar with US boat buying agreements (never done one myself) - but I would expect that (just like a UK contract) would spell out what the procedure is, the documents to be signed, the expected timescale and the reasons why either side could terminate the deal before completion. In practice those reasons should be wide enough to kybosh any deal for whatever reasons, even if dependent on arguing over the Survey .......The Escrow Agent would confirm to both sides that everything is good to go (cash in place and documents (per the Agreement) all executed) and then most importantly that both sides would need to confirm to the Escrow Agent that the deal is good to complete before the money and documents change hands(therefore even if one side thinks the other side is wrong to Kybosh the deal. and even if they are! then the deal does not happen and especially that neither the money or documents change hands......of course things could then end up in court (unlikely, but everything possible) but the possibility of legal arguments nothing to do with the Escrow side of things - it's just a failed deal.......at that point the Escrow Agent would return documents and cash to each side and wish them all best ).

The good news is that the US far more familiar with using Escrow, and it is actually real - whereas in the UK often little more than sending your cash to a Broker (aka a bloke you don't know and who may or may not have own financial problems) to hold in a bank account which even though titled Client Account (with the intention that it be used an Escrow Account) may in fact be no such thing (even if Broker thinks otherwise).

Hopefully others with actual hands on experiance will be along .

[David_Old_Jersey]

Thinking about it a bit more - if you know which State you will be buying in, you would probably be better off lining up a Lawyer to act as Escrow Agent in advance as the money can be put in place early and not stuck with any specific broker / boat and you can pick their brains before dealing with any brokers / vendors. Plus saying that side is lined up adds a bit to your credibility as a "serious" buyer, especially once the money is actually with the Escrow Agent.

I would pick a lawyer who is familiar with acting as Escrow Agent for boat transactions - and check they do have PII cover .

[Bluewaters2812]

Originally Posted by David_Old_Jersey

Thinking about it a bit more - if you know which State you will be buying in, you would probably be better off lining up a Lawyer to act as Escrow Agent in advance as the money can be put in place early and not stuck with any specific broker / boat and you can pick their brains before dealing with any brokers / vendors. Plus saying that side is lined up adds a bit to your credibility as a "serious" buyer, especially once the money is actually with the Escrow Agent.

I would pick a lawyer who is familiar with acting as Escrow Agent for boat transactions - and check they do have PII cover .

My experience worldwide is that Attorneys have very good protection over Trust funds and as a general rule of thumb you have pretty good protection through their Law Societies and Fidelity Guarantee Funds. I'm not sure the same can be said for a boat broker, so I am inclined to go the Attorney route at this stage, thanks for the input.

[Bluewaters2812]

Originally Posted by carstenb

You can put the money in escrow, either at the broker (if you buy through one) or at an attorney. How much remains in escrow for how long? Depends mostly on what decide, and what you can reach agreement with the seller for.

A typical example would be 10% deposited as earnest money, survey done, sea trials etc. rest of the amount then due, unless you can negotiate some of it remaining in escrow as guarantee.

Just not sure what protection I have with an Escrow account with a broker? I imagine with an Attorney there should be a bit more protection?

[carstenb]

Sure the attorney would always be better

[Cheechako]

in the US... if you dont have a broker, then the company who does the Documentation may be able to do the escrow function for you. I sold a US based boat while in the Caribe to a US based person, all paperwork and escrow was handled by that person in FLorida. Once buyer and seller said, "all is well" the paperwork was transferred and the money deposited by the independent party.

[Zanshin]

Originally Posted by Bluewaters2812

...I am not sure that your information is correct (or at least the info you were given when you bought). A US non-resident can State register the boat in the US. Secondly, a survey is only required if you import the vessel into the EU/UK.

My questions about the actual funding still remain though.

Unfortunately the state registration won't let you clear into and out of most countries as it is not accepted documentation, and my assumption was that as a non-resident you would want the boat outside of the U.S.

My boat hasn't been within several thousand miles of the U.K. but is registered there. VAT would be due when entering the realm of the E.U. but in order to get a Part I registration in the U.K. (with it's corresponding proof of title and liens) one needs to get a U.K. tonnage survey done. If no lien is planned or necessary then a SSR registry is sufficient, cheap, and I know of no country which will not accept that registration for clearance.

But you are right that I didn't address the escrow issue sufficiently - I went through a trusted broker or dealer each time and read the small print in the contract regarding the escrow services carefully. I would prefer a broker over a lawyer as a good broker will know the ins and outs of ownership transfer and might be better at ensuring that the boat has no known outstanding liens or charges against it; since you as a new owner would unfortunately 'inherit' those as well.

[Bluewaters2812]

Originally Posted by Zanshin

Unfortunately the state registration won't let you clear into and out of most countries as it is not accepted documentation, and my assumption was that as a non-resident you would want the boat outside of the U.S.

My boat hasn't been within several thousand miles of the U.K. but is registered there. VAT would be due when entering the realm of the E.U. but in order to get a Part I registration in the U.K. (with it's corresponding proof of title and liens) one needs to get a U.K. tonnage survey done. If no lien is planned or necessary then a SSR registry is sufficient, cheap, and I know of no country which will not accept that registration for clearance.

But you are right that I didn't address the escrow issue sufficiently - I went through a trusted broker or dealer each time and read the small print in the contract regarding the escrow services carefully. I would prefer a broker over a lawyer as a good broker will know the ins and outs of ownership transfer and might be better at ensuring that the boat has no known outstanding liens or charges against it; since you as a new owner would unfortunately 'inherit' those as well.

Which countries won't let you clear in with a US State registered boat?

[Zanshin]

Germany for a fact (after personal discussions with the authorities for a friend who wanted to travel to Germany with a U.S. state registered boat) and by extension the rest of the EU states as the laws referred to were from Brussels and applied to the Schengen states. Australia, French-Polynesia, Indonesia. People have travelled and cleared into numerous countries using state registration but had the officials wanted to they would have been able to keep them from doing so. There are some threads on the subject in this forum as well and also in other boating forums. Note that a U.S. state registration isn't like a Part II UK registration.
The person I know purchased the boat new from the factory in France, took delivery in Holland with a Delaware registration and sailed to the Caribbean via the Azores. I believe he can't sail to Venezuela and the USVI (he's not a U.S. citizen) but apart from that hasn't had problems with the paperwork yet.

[Bluewaters2812]

Originally Posted by Zanshin

Germany for a fact (after personal discussions with the authorities for a friend who wanted to travel to Germany with a U.S. state registered boat) and by extension the rest of the EU states as the laws referred to were from Brussels and applied to the Schengen states. Australia, French-Polynesia, Indonesia. People have travelled and cleared into numerous countries using state registration but had the officials wanted to they would have been able to keep them from doing so. There are some threads on the subject in this forum as well and also in other boating forums. Note that a U.S. state registration isn't like a Part II UK registration.
The person I know purchased the boat new from the factory in France, took delivery in Holland with a Delaware registration and sailed to the Caribbean via the Azores. I believe he can't sail to Venezuela and the USVI (he's not a U.S. citizen) but apart from that hasn't had problems with the paperwork yet.

Not sure why he would be prevented from sailing to the USVI or Venezuela? Could it have something to do with his nationality or is he British?

[Zanshin]

He's a EU national (German) and non U.S. resident and the boat is not in the state of Delaware so nominally he's breaking the law and thus entering the U.S. with that boat isn't a good idea, plus he doesn't have a visa. I don't know exactly what the issue with Venezuela is, but that he mentioned no longer being able to go there with this boat (and no longer being able to fill up on cheap diesel).