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JoeLawyer
JoeLawyer, Attorney
Category: Bankruptcy Law
Satisfied Customers: 767
Experience:  Attorney in the practice of Bankruptcy Law since 1996
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Can you collateralize a property that does not exist

Customer Question

Can you collateralize a property that does not exist?
Submitted: 7 years ago.
Category: Bankruptcy Law
Expert:  JoeLawyer replied 7 years ago.
HiCustomer

I'm not sure I understand your question.

If you mean can you get a secured loan on non-existent property, I would say no - that would be fraud.

If you are asking what happens when you have a loan secured by property that exists, but then the property is destroyed, then I would say the loan is then reduced to an unsecured status.

If you are asking what happens when you have a loan secured by property that exists, but then the property is given away or sold, then it gets blurry. The creditor would probably have a claim against the buyer for getting rid of the collateral in violation of the security agreement without the creditor's approval. This could be viewed as simple breach of contract, or even as fraud. If the creditor knew the collateral was being gotten rid of and consented, then this would probably just reduce it to an unsecured loan.

I'm not sure if I answered your question, so if not, please let me know and I will try.

Thanks,
Joe

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Customer: replied 7 years ago.
I borrowed money from a bank in 2005 for construction of Buildings A & B (Phase 1) only secured by the land. There was no talk about Buildings C & D. In 2007, I decided to build c & D (Phase 2) with my own money on the same parcel and told my attorney (who also represented the Bank) that I do not want C & D to be encumbered by the Bank. His answer was that since the parcel was not divided and the buildings did not exist (no separate Legal Description) I could not separate them, but once the buildings are completed he will get them out for me. Now the bank claims that I signed a letter of commitment in 2007 for future advance (which was only for A & B) that stated the collateral as all buildings A, B, C & D. I do not have a copy of this letter of Comm. I may have signed it. The loan documents only state the parcel as collateral. At that time (2007) Buildings C & D did not exist, and I could have decided not to build them. My loan for A & B was not contingent upon building C & D or provide additional security. And the bank did not provide any additional consideration for C & D. Is that letter of commitment valid for the fact that in 2007 Bldg C & D did not exist and I had the option not to build them.
Customer: replied 7 years ago.
I borrowed money from a bank in 2005 for construction of Buildings A & B (Phase 1) only secured by the land. There was no talk about Buildings C & D. In 2007, I decided to build c & D (Phase 2) with my own money on the same parcel and told my attorney (who also represented the Bank) that I do not want C & D to be encumbered by the Bank. His answer was that since the parcel was not divided and the buildings did not exist (no separate Legal Description) I could not separate them, but once the buildings are completed he will get them out for me. Now the bank claims that I signed a letter of commitment in 2007 for future advance (which was only for A & B) that stated the collateral as all buildings A, B, C & D. I do not have a copy of this letter of Comm. I may have signed it. The loan documents only state the parcel as collateral. At that time (2007) Buildings C & D did not exist, and I could have decided not to build them. My loan for A & B was not contingent upon building C & D or provide additional security. And the bank did not provide any additional consideration for C & D. Is that letter of commitment valid for the fact that in 2007 Bldg C & D did not exist and I had the option not to build them. Customer(Online) -- 4 Accepts / 3 Questions

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