Preferred Ship Mortgage on Vessel Under Construction

The U.S. Court of Appeals for the Fifth Circuit ruled that a preferred ship mortgage may be recorded before a vessel’s construction is completed. In the instant case, the mortgage was recorded with the U.S. Coast Guard on July 27, 1999. The ship completed its sea trials and was delivered on August 18, 1999. The owner later defaulted on the mortgage and other debts. The U.S. Maritime Administration (MARAD) asserted that its preferred ship mortgage took precedence over other claims. A classification society asserted that the mortgage was not entitled to status as a preferred ship mortgage because it was issued on a ship technically not in existence. The court held that the Ship Mortgage Act allows a preferred ship mortgage to be filed on a ship under construction. United States v. Trident Crusader, No. 03-30426 (5th Cir.) (HK Law)