Marine Capsule

9. Marine credit

PERSONAL LOAN OR LINE OF CREDIT

This type of credit is detailed in the Marine capsule no. 6, Quality of title: capacity, credit, privileges, etc.

It has no direct link between with the boat unless it is secured by a mortgage, chattel or marine. For these loan types, the interest rates are usually quite high and the repayment period rarely exceeds five years.

CHATTEL MORTGAGE

This credit security is registered according to provincial law. In Quebec, they are registered in the RDPRM system. In Ontario and some other provinces the PPSA (Personal Property Security Act) system is used. Since this security is at a province level, it is less safe for a lender, should the vessel navigate out of the country, USA, Caribbean, etc.

It can secure all kinds of loans. Rates and repayment conditions of credits secured by chattel mortgages are less flexible than the ones secured by a marine mortgage.

In the province of Quebec, if a RDPRM mortgage is registered against a vessel already registered in Canada or in another country, it has no security value. (Code Civil du Quebec, section 2714).

FINANCING CONTRACTS (Conditional or by Installment Sales Contract)

This type of financing is widely used for various consumer goods: Automotive, furniture, etc. Lenders usually use it for vessels whose value is not very high and that will not regularly navigate in foreign waters.

It is excluded for vessels kept "in bond". This last topic is dealt with in the Marine capsule no. 10, Taxes and duties fees

  • This contract transfers to right of ownership to the lender, this means that the registered owner (buyer) becomes effectively the owner of the vessel only at the moment his last payment is made
  • This contract is registered in the "chattel security mortgage” system,  according to the relevant province law
  • The main terms used in this contract are:·
    • The vendor must be a Canadian vessel dealer
    • The vessel may not already be registered or in the process of being so
    • The sales taxes must have been paid in full

BRIDGE FINANCING

Use

Bridge financing is used when the lender wants to allow his client to benefit, immediately, of favorable rate of interest and repayment conditions related to the filing of a maritime mortgage. This financing allows the lender to disburse funds before the recording of the maritime mortgage.

General constraints

  • The credit instrument used will be a personal loan note or a conditional sales contract
  • A Marine Advisor will handle the file. He will, and not the borrower, manage the registration process and the mortgage recording
  • The buyer will have signed a Marine Mortgage Commitment Agreement (with an expiration of 90 days)
  • All registration and mortgage documents will have been signed, including a proxy to date for some documents. They will be in the hands of the Marine Advisor
  • Evidence of adequate insurance will have been issued; not only a commitment to get an insurance

The lender will disburse the funds directly to the seller, only after the above points will have been addressed

  • The Certificate of Registry will be issued only after the vessel will have been paid in full to the seller
  • The Certificate of Registry will be remitted by the Canadian Authorities directly to the Marine Advisor
  • The marine mortgage will be registered by the Marine Advisor immediately after his receipt of the Certificate of Registry

When the amount of the loan is high, a chattel mortgage is sometimes registered for the period of time elapsing between the disbursement of the funds and the marine mortgage registration.  

The Marine Advisor handling these transactions must be competent and highly experienced in Canadian and international marine transactions. His role is to help and advise.

Sales by dealer

  • The seller is a Canadian dealer
  • The boat is not already registered in virtue of the Canada Shipping Act. It may be registered under a similar legislation of another country
  • The buyer signs a conditional (or installment) sales contract and not another credit instrument
  • The buyer signs an Ownership Agreement allowing the lender to waive, upon the issuance of the Certificate of Registry, his right of ownership (granted by the conditional sales contract). This right will be replaced by the ones of a first rank mortgage. 

Sales by Canadian individual or seller from another country

  • A favorable credit investigation was completed on the seller and the boat
  • The boat is not already registered in Canada. It may be so in another country
  • The buyer can sign any credit instrument but never a Conditional Sales Contract (or installment sales contract)

MARINE MORTGAGE (Regular)

Credit security

This security is the best one existing against a vessel. It may be taken only of a boat having a Certificate of Registry in virtue of Canada Shipping Act. It is a Canadian federal security. For details, refer to the Maritime capsule No. 3, Registration, Canada and other countries

Most lenders use a marine mortgage as a collateral security for a loan (blanket / umbrella) giving more flexibility for the use their credit products.

  • Personal loan
  • Line of credit
  • Demand loan
  • Mortgage guarantee
  • etc.

This type of mortgage is therefore, not necessarily linked to a boat purchase.

Rates and reimbursement conditions of loans are usually improved by this type of security.

Loans may be renegotiated, renewed or replaced by others without causing any novation or derogation from the rights of the lender. There is no need for the lender to register a new mortgage as long as the total amount of advances do not exceed the registered amount of the mortgage.

Interest computation

The interest compounding for the loans secured by a maritime mortgage do not have to be semi-annual; it is usually monthly.

Penalty for early payment

Usually the Collateral Mortgage Agreement prepared by the Marine Advisor states that the borrower may reimburse his debt in whole or in part, at any time without having to pay any penalty to the lender unless the "credit instruments" stipulate differently. A lender, in agreement with his client may diverge from this rule, by writing, but it is rather rare.

Assumption of a mortgage

A maritime mortgage, except in very rare cases, may not be assumed by a new buyer because it might secure funds not related to the boat. The boat could continue to secure certain other seller’s debts. Unpleasant surprises might arise for a buyer.

Main institutional mortgage lenders

Sources of the information: Marine mortgage files handled by our office:

  • National Bank
    • Pleasure boats from dealers or sales between individuals
    • Passenger commercial vessels or fishing
    • Purchased in Canada or abroad 
    • Vessels may remain outside of Canada
    • Specialized financing centers for dealers
    • All branches
  • CIBC Bank
    • Pleasure boats from dealers or sales between individuals
    • Passenger commercial vessels or fishing
    • Purchases in Canada or abroad
    • Vessels may remain outside of Canada
    • All branches
  • Laurentian Bank
    • Pleasure boats from Canadian dealers only
    • No commercial vessels
    • Purchase in Canada only
    • Specialized financing centers for dealers
  • Caisses Desjardins
    • Pleasure boats from dealers or sales between individuals
    • Passenger commercial vessels or fishing
    • Purchase in Canada or abroad
    • Vessels may remain outside of Canada 
    • Specialized financing centers for dealers 
    • All branches
  • Bank of Montreal
    • Pleasure boats from dealers or sales between individuals
    • No commercial vessels
    • Purchase in Canada only
    • Specialized financing centers for dealers

Private mortgage lenders

Pleasure and commercial boats
Most of these transactions are for financing balances of sale

MARINE MORTGAGE (Builder's)

  • A builder's marine mortgage may be registered against a boat under construction.
  • The construction work must be performed in Canada.
  • The port of Registry must be the closest one to the place of construction. It may be changed after the construction to accommodate the owner/buyer
  • Most of the time, these boats are fishing boats or commercial passenger boats

This is the only case where a marine mortgage may be registered before the Certificate of Registry is issued. All registry documents are prepared and filed and the name for the boat is reserved at that moment. The certificate will be issued following the completion of the work and the presentation of some additional document at that time.

The registered amount for the mortgage is the total of all expected lender's disbursements up to the end of the construction. As the construction is going on, the different disbursements add up. In several occasions, for each disbursement, a Demand Loan Note is signed. At the end of the construction the total of the disbursements may be consolidated in a single loan.

PURCHASE OFFER WITH CONDITIONAL LOAN APPROVAL

When one of the purchase offer conditions is getting a loan, it should comply with the following:

  • The condition must be written in the purchase offer document
  • If the loan is refused, the seller may require a letter from the lender confirming that the loan cannot be granted
  • If a copy of this letter is not presented to the seller, the potential buyer may lose his deposit

RELEASE OF MORTGAGE (SATISFACTION)

Importance

It is important that the releases are registered and reports completed as soon as possible, for all mortgages, marine or chattel. The release process must be followed closely otherwise, one will have to handle it upon resale, which could bring unwanted delays.

Chattel mortgage

Some provincial systems have defined periods during which the security remains active. At the end of these periods, the security is automatically cancelled. If your lender forgets to process the release, at some time, the guarantee will be cleared.

Marine mortgage

A maritime mortgage is permanent. It is released only by the presentation of certain documents to the Canadian Authorities or following a competent Court order. The Marine Advisor will therefore, make sure that the process be done the right way:

  • Preparation of relevant documents
  • Obtaining the required signatures
  • Presentation to the Authorities
  • Obtaining a search certificate confirming the release completion
  • Preparation and sending of reports to the debtor, his lender and, if there is one, to the new buyer and/or his lender.

This writing is a short summary of some of the topics to consider in relation with a vessel purchase, sale or credit.

Each transaction is a special case.

 
    
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