Boat loans hit choppy seas

Worsening credit crunch has area repossessions on the rise, experts say

By Rick Barrett of the Journal Sentinel

MaryJo Walicki

These two boats were repossessed by North Shore Bank and are now for sale at the company's car leasing lot in West Allis. Repossession of boats is up at least 20% from a year ago.

On the Web

Help with credit problems can be found through the Consumer Credit Counseling Service of Greater Milwaukee.

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Quotable

 With the financial bubble that's rolled over us, you aren't alone" in defaulting on a loan. 

Cate Williams

vice president of financial literacy for Money Management International

More consumers are getting swamped in their boat loans as credit woes worsen.

In the Milwaukee area, companies that repossess recreational watercraft say their business is up between 20% and 50% from a year ago. They're hauling away boats that cost tens of thousands of dollars, or more, after the owners fall several months behind on their payments.

The number of boat repossessions, while not made public by banks and credit unions, will likely increase this fall and winter as more bad loans surface and some consumers find they can't afford winter storage.

"We do more boat repossessions in January than July, that's for sure," said Tom Franklin with Speedy Repossession Service.

When the economy worsens, boats are among the first things that consumers surrender as they struggle with home mortgage payments and less available home-equity financing.

And it's not just boats. More people are struggling to make their payments on motorcycles, travel trailers, all-terrain vehicles and snowmobiles.

"With the financial bubble that's rolled over us, you aren't alone" defaulting on a loan, said Cate Williams, vice president of financial literacy for Money Management International, a consumer counseling service.

Repossessed boats and recreational vehicles are resold through auctions, boat dealerships, used car lots, bank and credit union parking lots.

Community First Credit Union of Appleton recently sold a repossessed boat, with a 320-horsepower Mercury engine, for about $40,000. The credit union wanted $49,000 for the 2003 Sea Ray Sun Dancer that had fewer than 50 operating hours on it.

When selling a repossessed boat, lenders are fortunate if they get 75% of the amount owed, said Cathy Tierney, president of Community First Credit Union.

"In very rare occasions do we get enough to pay off the loan and return additional funds to the credit union member," she said.

The 2007 boating season got off to a slow start largely because of poor weather across much of the country. Low interest rates and long-term finance programs helped keep sales from tanking, but some of those loans have since gone bad.

'Parking lot sales'

Inflated credit scores were partly to blame. Also, many first-time boat owners were clueless on what it cost to operate and maintain a boat.

A high percentage of repossessed boats were originally sold at "parking lot sales" by high-pressure sales people to ill-informed buyers, said Mark Gaska, partner at M-W Marine boat dealership in Hales Corners.

"Usually these boats are 1 to 3 years old, and the owners hadn't made that many payments before they realized what the heck they got talked into," Gaska said.

M-W Marine inspects and repairs repossessed boats before they are resold by a local bank. Some of the boats are in pristine condition, while others have been abused by former owners who didn't care about their loan collateral in the final months before they defaulted.

"You can tell if a guy knew he was going down the tubes and did everything he could to destroy a boat before handing it back to the bank. It's just stupidity on their part because the bank is going to charge them for whatever they don't recover" in the resale, Gaska said.

People who lose their boat to the lender usually don't put up much of a fight when the repossession truck comes to haul it away. They've run out of time and options with their lender, and they know it, said Jeff Henderson, owner of Harrison Marine Inc., a Michigan boat dealership which claims to be the largest repossessed boat outlet in the Midwest.

Harrison Marine specializes in repossessing larger recreational boats, including yachts valued at several million dollars. It has repossessed 15 boats in Wisconsin this year and, nationwide, its business is up about 20% from a year ago.

It's not uncommon for repossessed boats to have $200,000 loan balances, said Henderson, who works for about 20 banks.

"Every fall we see a spike in loan defaults. Three months after someone stops making their boat payment, the banks are calling me up. I go wherever the loan goes," Henderson said.

Former professional basketball star Latrell Sprewell, who three years ago rejected a $21 million contract offer, recently had his 70-foot, $1.5 million yacht repossessed from storage in Manitowoc.

Sprewell had fallen behind on his $10,322 monthly boat payment for the yacht named "Milwaukee's Best," according to court records.

Sometimes too late

Repossession companies say they've noticed more boats and other recreation vehicles with higher loan-to-value ratios and an increase in longer-term loans.

"The trouble is people are taking out 10-year boat loans. And the depreciation rate on some of these boats is terrible," said Les McCook, president of the American Recovery Association, and a repossession-business owner from Austin, Texas.

Once the repo man comes knocking on your door, it's generally too late to cut a deal with your lender to keep the boat.

"If you couldn't make the payments before, what's changed so that you could make them now? That's what a lender will want to know," said Kathryn Crumpton, manager of Consumer Credit Counseling Service of Greater Milwaukee.

But lenders want their money, not their loan collateral returned to them in a boat that smells like rotten kelp and dead fish.

Contact your lender at the first sign of financial trouble and you might be able to avoid a repossession, Crumpton said.

Sometimes a lender will make arrangements that reduce your boat payments. A lender also might allow you to sell your boat for less than the amount owed, and then walk away from the rest of the loan balance.

"But whatever arrangements you make, you had better honor them. Your word has to mean something," Crumpton said.