46 U.S.C. § 31325 — Preferred mortgage liens and enforce-

Page 283 TITLE 46—SHIPPING § 31325 or the sale, conveyance, mortgage, or assign- ment of a mortgage of the vessel. (b) A mortgagor of a preferred mortgage cov- ering a self-propelled vessel shall use diligence in keeping a certified copy of the mortgage on the vessel. (Pub. L. 100–710, title I, § 102(c), Nov. 23, 1988, 102 Stat. 4744.) HISTORICAL AND REVISION NOTES Revised section Source section (U.S. Code) 31324 ............................................ 46:923 Section 31324(a) provides for examination of mort- gages of a vessel that is covered by a preferred mort- gage by persons that have business with the vessel that may give rise to a maritime lien or the sale, convey- ance, mortgage, or assignment of the mortgage. This subsection makes no substantive change to law. Section 31324(b) requires that a certified copy of the mortgage must be on board a self-propelled vessel. This subsection makes no substantive change to law. Statutory Notes and Related Subsidiaries EFFECTIVE DATE Section effective Jan. 1, 1989, with certain exceptions and qualifications, see section 107 of Pub. L. 100–710, set out as a note under section 31301 of this title. § 31325. Preferred mortgage liens and enforce- ment (a) A preferred mortgage is a lien on the mort- gaged vessel in the amount of the outstanding mortgage indebtedness secured by the vessel. (b) On default of any term of the preferred mortgage, the mortgagee may— (1) enforce the preferred mortgage lien in a civil action in rem for a documented vessel, a vessel to be documented under chapter 121 of this title, a vessel titled in a State, or a for- eign vessel; (2) enforce a claim for the outstanding in- debtedness secured by the mortgaged vessel in— (A) a civil action in personam in admiralty against the mortgagor, maker, comaker, or guarantor for the amount of the outstanding indebtedness or any deficiency in full pay- ment of that indebtedness; and (B) a civil action against the mortgagor, maker, comaker, or guarantor for the amount of the outstanding indebtedness or any deficiency in full payment of that in- debtedness; and (3) enforce the preferred mortgage lien or a claim for the outstanding indebtedness se- cured by the mortgaged vessel, or both, by ex- ercising any other remedy (including an extrajudicial remedy) against a documented vessel, a vessel for which an application for documentation is filed under chapter 121 of this title, a vessel titled in a State, a foreign vessel, or a mortgagor, maker, comaker, or guarantor for the amount of the outstanding indebtedness or any deficiency in full payment of that indebtedness, if— (A) the remedy is allowed under applicable law; and (B) the exercise of the remedy will not re- sult in a violation of section 56101 or 56102 of this title. (c) The district courts have original jurisdic- tion of a civil action brought under subsection (b)(1) or (2) of this section. However, for a docu- mented vessel, a vessel to be documented under chapter 121 of this title, a vessel titled in a State, or a foreign vessel, this jurisdiction is ex- clusive of the courts of the States for a civil ac- tion brought under subsection (b)(1) of this sec- tion. (d)(1) Actual notice of a civil action brought under subsection (b)(1) of this section, or to en- force a maritime lien, must be given in the man- ner directed by the court to— (A) the master or individual in charge of the vessel; (B) any person that recorded under section 31343(a) or (d) of this title an unexpired notice of a claim of an undischarged lien on the ves- sel; and (C) a mortgagee of a mortgage filed or re- corded under section 31321 of this title that is an undischarged mortgage on the vessel. (2) Notice under paragraph (1) of this sub- section is not required if, after search satisfac- tory to the court, the person entitled to the no- tice has not been found in the United States. (3) Failure to give notice required by this sub- section does not affect the jurisdiction of the court in which the civil action is brought. How- ever, unless notice is not required under para- graph (2) of this subsection, the party required to give notice is liable to the person not notified for damages in the amount of that person’s in- terest in the vessel terminated by the action brought under subsection (b)(1) of this section. A civil action may be brought to recover the amount of the terminated interest. The district courts have original jurisdiction of the action, regardless of the amount in controversy or the citizenship of the parties. If the plaintiff pre- vails, the court may award costs and attorney fees to the plaintiff. (e) In a civil action brought under subsection (b)(1) of this section— (1) the court may appoint a receiver and au- thorize the receiver to operate the mortgaged vessel and shall retain in rem jurisdiction over the vessel even if the receiver operates the vessel outside the district in which the court is located; and (2) when directed by the court, a United States marshal may take possession of a mort- gaged vessel even if the vessel is in the posses- sion or under the control of a person claiming a possessory common law lien. (f)(1) Before title to the documented vessel or vessel for which an application for documenta- tion is filed under chapter 121 is transferred by an extrajudicial remedy, the person exercising the remedy shall give notice of the proposed transfer to the Secretary, to the mortgagee of any mortgage on the vessel filed in substantial compliance with section 31321 of this title before notice of the proposed transfer is given to the Secretary, and to any person that recorded an unexpired notice of a claim of an undischarged lien on the vessel under section 31343(a) or (d) of this title before notice of the proposed transfer is given to the Secretary. (2) Failure to give notice as required by this subsection shall not affect the transfer of title Page 284 TITLE 46—SHIPPING § 31325 to a vessel. However, the rights of any holder of a maritime lien or a preferred mortgage on the vessel shall not be affected by a transfer of title by an extrajudicial remedy exercised under this section, regardless of whether notice is required by this subsection or given. (3) The Secretary shall prescribe regulations establishing the time and manner for providing notice under this subsection. (Pub. L. 100–710, title I, § 102(c), Nov. 23, 1988, 102 Stat. 4745; Pub. L. 101–225, title III, § 303(4), Dec. 12, 1989, 103 Stat. 1923; Pub. L. 104–324, title XI, § 1124(a), (b), Oct. 19, 1996, 110 Stat. 3980; Pub. L. 105–383, title IV, § 401(c)(5)–(7), Nov. 13, 1998, 112 Stat. 3425; Pub. L. 107–295, title II, § 205(b), Nov. 25, 2002, 116 Stat. 2096; Pub. L. 109–304, § 15(30), Oct. 6, 2006, 120 Stat. 1704; Pub. L. 110–181, div. C, title XXXV, § 3529(b)(1)(B), Jan. 28, 2008, 122 Stat. 603.) HISTORICAL AND REVISION NOTES Revised section Source section (U.S. Code) 31325(a) ........................................ 46:951 (1st sentence) 31325(b)(1) .................................... 46:951 (2d sentence) 31325(b)(2) .................................... 46:954(a) 31325(b)(3) .................................... New 31325(c) ........................................ 46:951 (3d sentence) 31325(d) ........................................ 46:951 (4th to 6th sentences) 31325(e) ........................................ 46:952 (1st, 2d sentences) Section 31325 provides for the enforcement of a pre- ferred mortgage lien. Section 31325(a) makes a ‘‘preferred mortgage’’ a lien on the vessel in the amount of the mortgage indebted- ness secured by the vessel outstanding at foreclosure. This subsection makes no substantive change to law. Section 31325(b) provides that, on default of any term, the mortgagee may enforce the preferred mortgage lien in a civil action in rem, or in personam in admiralty against the mortgagor, comaker, or guarantor for the amount of the outstanding indebtedness secured by the vessel or any deficiency in paying off that indebted- ness. This subsection makes a substantive change to law by allowing a nonadmiralty civil action to be brought against the mortgagor, comaker, or guarantor for the amount of the outstanding indebtedness secured by the vessel or any deficiency in paying off that in- debtedness. This change allows an action to be brought even when the vessel is outside U.S. jurisdiction. This section will also allow the action to be brought against the comaker or guarantor of the mortgage. Section 31325(c) provides for original and exclusive ju- risdiction by a district court, to the exclusion of the courts of a State for civil actions brought in rem. It also provides for original jurisdiction for civil actions brought in personam in admiralty and civil actions brought under subsection (b)(3). This subsection makes a substantive change to law by broadening the jurisdic- tion to courts in the territories, as defined in section 31301, as well as giving original jurisdiction to the dis- trict courts in nonadmiralty civil actions brought to enforce the preferred mortgage lien. Subsection (d) provides that actual notice of a civil action in rem to enforce a maritime lien must be given in a manner directed by the court to the master, indi- vidual in charge of the vessel, to any person that re- corded a notice of a claim of an undischarged lien, and, for the first time, to the mortgagee of a mortgage filed with the Secretary. This notice is not required if, after a search is made that is satisfactory to the court, the person entitled to notice is not found in the United States. Failure to give notice does not affect the court’s jurisdiction. However, the mortgagor is still lia- ble to the person not notified for damages in the amount of that person’s interest in the vessel that was terminated by the civil action in rem, and a civil action may still be brought to recover the amount of the ter- minated interest. The district courts have original ju- risdiction of the action, regardless of the amount in controversy or the citizenship of the parties. If plaintiff prevails, the court shall award costs and attorneys fees to the plaintiff. Subsection (e) provides that, in a civil action in rem, the court may appoint a receiver and authorize oper- ation of the vessel. When directed by the court, a United States marshal may take possession—even if the vessel is in the possession of or under the control of a person claiming a possessory common law lien. This subsection makes a substantive change to law by allowing the court to retain in rem jurisdiction over the vessel even if the receiver operates the vessel outside the district in which the court is located. HOUSE FLOOR STATEMENT Subsection (c) of this section clarifies that the dis- trict courts have original jurisdiction for a civil action under subsection (b) of this section, and exclusive juris- diction in the case of vessels documented or to be docu- mented under chapter 121 of title 46. Editorial Notes AMENDMENTS 2008—Subsec. (b)(3)(B). Pub. L. 110–181 amended Pub. L. 109–304, § 15(30). See 2006 Amendment note below. 2006—Subsec. (b)(3)(B). Pub. L. 109–304, § 15(30), as amended by Pub. L. 110–181, substituted ‘‘section 56101 or 56102 of this title’’ for ‘‘section 9 or 37 of the Ship- ping Act, 1916 (46 App. U.S.C. 808, 835)’’. 2002—Subsec. (d)(1)(B). Pub. L. 107–295, § 205(b)(1), sub- stituted ‘‘an unexpired notice of a claim’’ for ‘‘a notice of a claim’’. Subsec. (f)(1). Pub. L. 107–295, § 205(b)(2), substituted ‘‘an unexpired notice of a claim’’ for ‘‘a notice of a claim’’. 1998—Subsecs. (b)(1), (3), (c). Pub. L. 105–383 inserted ‘‘a vessel titled in a State,’’ after ‘‘chapter 121 of this title,’’. 1996—Subsec. (b). Pub. L. 104–324, § 1124(a)(1), sub- stituted ‘‘mortgagee may’’ for ‘‘mortgage may’’ in in- troductory provisions. Subsec. (b)(1). Pub. L. 104–324, § 1124(a)(2)(A), sub- stituted ‘‘preferred’’ for ‘‘perferred’’. Subsec. (b)(3). Pub. L. 104–324, § 1124(a)(2)(B), (3), added par. (3). Subsec. (f). Pub. L. 104–324, § 1124(b), added subsec. (f). 1989—Subsecs. (b), (c). Pub. L. 101–225 amended sub- secs. (b) and (c) generally. Prior to amendment, sub- secs. (b) and (c) read as follows: ‘‘(b) On default of any term of the preferred mort- gage, the mortgagee may enforce the preferred mort- gage lien in— ‘‘(1) a civil action in rem for a documented vessel or a vessel to be documented under chapter 121 of this title; ‘‘(2) a civil action in personam in admiralty against the mortgagor, comaker, or guarantor for the amount of the outstanding indebtedness secured by the mortgaged vessel or any deficiency in full pay- ment of that indebtedness; and ‘‘(3) a civil action against the mortgagor, comaker, or guarantor for the amount of the outstanding in- debtedness secured by the mortgaged vessel or any deficiency in full payment of that indebtedness. ‘‘(c) The district courts have original jurisdiction of a civil action brought under subsection (b) of this sec- tion. However, for documented vessels or vessels to be documented under chapter 121 of this title, this juris- diction is exclusive of the courts of the States for a civil action under subsection (b)(1) of this section.’’ Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2008 AMENDMENT Amendment by Pub. L. 110–181 effective as if included in the enactment of Pub. L. 109–304, see section Page 285 TITLE 46—SHIPPING § 31327 3529(b)(2) of Pub. L. 110–181, set out as a note under sec- tion 3205 of this title. EFFECTIVE DATE OF 2002 AMENDMENT Pub. L. 107–295, title II, § 205(e), Nov. 25, 2002, 116 Stat. 2096, provided that: ‘‘This section [see Tables for classi- fication] shall take effect January 1, 2003.’’ EFFECTIVE DATE Section effective Jan. 1, 1989, with certain exceptions and qualifications, see section 107 of Pub. L. 100–710, set out as a note under section 31301 of this title. CONSTRUCTION OF 1996 AMENDMENT Pub. L. 104–324, title XI, § 1124(c), Oct. 19, 1996, 110 Stat. 3981, provided that: ‘‘The amendments made by subsections (a) and (b) [amending this section] may not be construed to imply that remedies other than judicial remedies were not available before the date of enact- ment of this section [Oct. 19, 1996] to enforce claims for outstanding indebtedness secured by mortgaged ves- sels.’’ § 31326. Court sales to enforce preferred mort- gage liens and maritime liens and priority of claims (a) When a vessel is sold by order of a district court in a civil action in rem brought to enforce a preferred mortgage lien or a maritime lien, any claim in the vessel existing on the date of sale is terminated, including a possessory com- mon law lien of which a person is deprived under section 31325(e)(2) of this title, and the vessel is sold free of all those claims. (b) Each of the claims terminated under sub- section (a) of this section attaches, in the same amount and in accordance with their priorities to the proceeds of the sale, except that— (1) the preferred mortgage lien, including a preferred mortgage lien on a foreign vessel whose mortgage has been guaranteed under chapter 537 of this title, has priority over all claims against the vessel (except for expenses and fees allowed by the court, costs imposed by the court, and preferred maritime liens); and (2) for a foreign vessel whose mortgage has not been guaranteed under chapter 537 of this title, the preferred mortgage lien is subordi- nate to a maritime lien for necessaries pro- vided in the United States. (Pub. L. 100–710, title I, § 102(c), Nov. 23, 1988, 102 Stat. 4746; Pub. L. 103–160, div. A, title XIII, § 1360, Nov. 30, 1993, 107 Stat. 1816; Pub. L. 109–304, § 15(31), Oct. 6, 2006, 120 Stat. 1704.) HISTORICAL AND REVISION NOTES Revised section Source section (U.S. Code) 31326(a) ........................................ 46:953(b), 961(c) 31326(b)(1) .................................... 46:953(b) 31326(b)(2) .................................... 46:951 (2d par. proviso) Section 31326(a) provides for a court-ordered sale to enforce a preferred mortgage lien or a maritime lien and the priority of claims. When a mortgaged vessel is sold by court order in a civil action in rem, any prior claim in the vessel is terminated—including any possessory common law lien. This subsection makes a substantive change to law by making the process the same for maritime liens as was provided for preferred mortgage liens. This eliminates the requirement for making a new mortgagee for a court sale to enforce a maritime lien. This section also broadens the jurisdic- tion to courts in the territories, as defined in section 31301. Section 31326(b)(1) provides that each of these termi- nated claims attaches, in the same amount and pri- ority, to the proceeds of sale—except that the preferred mortgage lien always has priority over these other claims. However, the preferred mortgage lien is still subordinated to expenses and fees allowed by the court, costs imposed by the court, and any preferred maritime liens. This may include statutory fees such as the fee of the United States Marshal under 28 U.S.C. 1921. Ex- cept for broadening its coverage under subsection (a), this makes no substantive change to law. Section 31326(b)(2) provides in the case of a foreign vessel, the preferred mortgage lien is also subordinated to a maritime lien for necessaries performed or sup- plied for the vessel in the United States. ‘‘Provided’’ has been substituted for ‘‘provided or supplied’’ for con- sistency in usage. Except for broadening its coverage under subsection (a), this paragraph makes no sub- stantive change to law. Editorial Notes AMENDMENTS 2006—Subsec. (b)(1). Pub. L. 109–304, § 15(31)(A), sub- stituted ‘‘chapter 537 of this title,’’ for ‘‘title XI of the Merchant Marine Act, 1936 (46 App. U.S.C. 1101 et seq.)’’. Subsec. (b)(2). Pub. L. 109–304, § 15(31)(B), substituted ‘‘chapter 537 of this title’’ for ‘‘title XI of that Act’’. 1993—Subsec. (b)(1). Pub. L. 103–160, § 1260(1), inserted ‘‘, including a preferred mortgage lien on a foreign ves- sel whose mortgage has been guaranteed under title XI of the Merchant Marine Act, 1936 (46 App. U.S.C. 1101 et seq.)’’ after ‘‘preferred mortgage lien’’. Subsec. (b)(2). Pub. L. 103–160, § 1360(2), inserted ‘‘whose mortgage has not been guaranteed under title XI of that Act’’ after ‘‘foreign vessel’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE Section effective Jan. 1, 1989, with certain exceptions and qualifications, see section 107 of Pub. L. 100–710, set out as a note under section 31301 of this title. § 31327. Forfeiture of mortgagee interest The interest of a mortgagee in a documented vessel or a vessel covered by a preferred mort- gage under section 31322(d) of this title may be terminated by a forfeiture of the vessel for a violation of a law of the United States only if the mortgagee authorized, consented, or con- spired to do the act, failure, or omission that is the basis of the violation. (Pub. L. 100–710, title I, § 102(c), Nov. 23, 1988, 102 Stat. 4746.) HISTORICAL AND REVISION NOTES Revised section Source section (U.S. Code) 31327 ............................................ 46:961(b) Section 31327 provides for forfeiture of the mortga- gee’s interest if the mortgagee authorized, consented, or conspired to do the act, failure, or omission that is the basis of the violation that caused forfeiture of the vessel. This section makes no substantive change to law. Statutory Notes and Related Subsidiaries EFFECTIVE DATE Section effective Jan. 1, 1989, with certain exceptions and qualifications, see section 107 of Pub. L. 100–710, set out as a note under section 31301 of this title.