One of the advantages of documentation is the availability of a "Preferred Ship Mortgage" on the vessel. In most circumstances, the preferred mortgage statute requires that the mortgage be a United States citizen, or a federally insured depository institution. This provision precludes an offshore bank or non-United States citizen from holding a preferred mortgage. This requirement is waived, however, for vessels operated only for pleasure greatly expanding the availability of preferred mortgages.
The main advantage of a preferred mortgage is that it creates a lien on the vessel in the amount of the outstanding mortgage indebtedness and the mortgage enjoys a certain level of priority in the event of default. In the case of expensive yachts and boats, it may be easier to obtain a mortgage if the vessel is documented so that a preferred mortgage can be obtained. Many financial institutions require eligible vessels to have the preferred mortgage.
Another advantage of documentation, particularly for vessels based in California and Florida, is that the vessel may transit between a port of the United States and a port of a foreign country without entering or clearing with the United States Customs Service. However, the vessel must still report its arrival to Customs under applicable regulations.
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