Maritime loans can be secured by means of ship mortgages. A ship mortgage is the pledging and charge upon title of a ship and its machinery as security for a loan. The Ship Mortgage Act, recodified in 46 U.S.C. §§ 31301-30, refers to the mortgage lien as a preferred mortgage lien or a mortgage lien.
A preferred mortgage is a lien on the mortgaged vessel in the amount of the outstanding mortgage indebtedness secured by the vessel.[i] A preferred mortgage includes any part of a documented vessel or a vessel, for which an application for documentation is filed.[ii] Foreclosure of the mortgage of a ship is cognizable in admiralty.[iii]
If it is a preferred mortgage, there will be no suit for foreclosure in a state court and, if it is not a preferred mortgage, there will be no suit for foreclosure in an admiralty court.[iv] In an ordinary mortgage of a vessel, whether made to secure the purchase money upon the sale or to raise money for other purposes, is not regarded as a maritime contract. Therefore, a court of admiralty has no jurisdiction of a libel to foreclose it.[v]
If a mortgage covers a vessel and an additional property that is not a vessel, it will not authorize a civil action in rem to enforce the rights of the mortgagee under the mortgage against that additional property which is not a vessel.[vi] On default of any term in a preferred ship mortgage, the mortgagee can enforce the preferred mortgage lien in a civil action in rem.
An action in personam can also be brought against a person liable for the outstanding indebtedness or any deficiency, either in a civil action in personam in admiralty or in an ordinary civil action.[vii]
[i] 46 USCS § 31325
[ii] 46 USCS § 31322
[iii] Beluga Holding, Ltd. v. Commerce Capital Corp., 212 F.3d 1199 (11th Cir. Fla. 2000)
[iv] Detroit Trust Co. v. The Thomas Barlum, 293 U.S. 21 (U.S. 1934)
[v] The Oconee, 280 F. 927, 930 (D. Va. 1922)
[vi] 46 USCS § 31303
[vii] 46 USCS §31325