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Questions on Collateral

Collateral is defined as assets pledged by a borrower, whether an individual or a company, in order to receive a business loan. These assets secure the repayment and act as a sort of protection against default, in that they can be seized by the lender should the borrower not repay the loan, including principal and interest, given the terms of the loan. Collateral can include business or personal property. When a borrower uses collateral to secure a loan, they are usually able to get a secured loan rather than an unsecured loan. In addition, they should be able to get the loan at a better rate than if they borrowed without collateral.

Listed below are a few questions answered by lawyers on collateral related issues.

In the absence of a written lease agreement, can a landlord seize commercial property being held as collateral by a perfected lienholder?

In the event that the landlord has not been given the property to hold, he or she doesn’t have any rights to hold the collateral to the exclusion of the first/perfected lienholder.

What the landlord does have the right to do is to seek judgment for unpaid rent. In such a situation, the landlord can attach any property owned by the tenant and proceed to liquidate it to reclaim the amount of money owed to him or her.

Can three people who signed a loan walk away from it when a fourth person has personal collateral backing the loan?

If borrowers default on a loan and the loan documents show evidence that all the borrowers are jointly and severally liable, the lender is allowed to pursue any or all of the borrowers to get the money back. What is most likely to happen is that the lender will foreclose on or repossess any collateral to begin with and then will go after the borrowers for the deficit remaining..

My daughter who stays with me took a loan using my personal property as collateral without my consent. She has now defaulted on the loan and the loan company has filed a claim and delivery for my property. How can I fight this?

First, you have to show evidence in court that the property belongs to you. Then you could file a temporary restraining order to prevent execution of the claim and delivery papers. Following this, you will have a hearing in court for a permanent injunction. It is also likely that criminal charges against your daughter will be filed by the loan company.

When taking a business loan, can an established business be used as collateral?

Whatever a lender accepts as collateral can be used to take a business loan. If the established business has valuable property, you could possibly borrow up to 80% of the value from the lender.

If you get a letter of demand from the bank for collateral or payment, how much time would you get before they claim the collateral? What are the repercussions of selling the collateral before they take it?

This all depends on what your contract says. Because the bank laid down the terms, the terms would likely be favorable to the bank. And having signed the contract, you would be bound by what it says.

However, it is crucial to note that if you sell the collateral it would constitute breach of contract, and perhaps even fraud and criminal action. This is because you do not own the property you are selling. Your credit will take a huge hit as well. Besides this, you can also be sued by the person to whom your collateral was sold.

If you are unable to make payments, contact the bank and check if you can work out a new payment schedule. You can also let them take the item pursuant to the contract. Also, try and avoid a situation in which you might have to file for bankruptcy. Unless the collateral is something like life support equipment that you absolutely need to stay alive, this route isn’t worth it.

There are many consequences of pledging collateral in order to get a loan. Usually, once a borrower pledges their collateral, in the form of real estate, stocks, business equipment, bank accounts, and so on, they won’t be allowed to pledge it again until their loan is paid off. They also stand to risk losing the collateral if they default on the loan. However, pledging valuable collateral always helps in trying to get a loan since it lessens a bank’s risk in lending a borrower money.

Ask a Business Lawyer

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Experience:  20 years experience in business law - sole proprietor, partnership, and corporations
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Recent Collateral Questions

  • Hi. Can I use material produced in one lawsuit for a tort

    Hi.
    Can I use material produced in one lawsuit for a tort for example, combined with material produced in other litigation proceedings as evidence of conspiracy between the parties of the various cases if a pattern can be established showing the same characteristics?
  • I am helping a friend who is being sued by a Plaintiff who

    I am helping a friend who is being sued by a Plaintiff who was a lawyer he retained for advice during probate. The Plaintiff has kept two separate sets of invoices, one set was for services rendered to the defendant for his sole benefit, the other set was for services rendered to the estate.
    He is being sued for breach of contract and unjust enrichment.
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    The estate closed after the attorney unsuccessfully attempted to plead for lawyer fees. She was paid by the defendant in the amount of the depleted retainer for her services that solely benefited the defendant.
    During her pleading in probate, she asked for 60 day extensions 3 times in order to produce documents showing that she performed services that benefited the estate. The 3rd motion was overruled, and her motion for fees was dismissed and the estate closed.
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    The defendant has since reached a point where keeping an attorney on retainer in his case has become financially illogical. There have now been 2 amended complaints, and 3 motions to dismiss and finally 6 affirmative defenses, including Statute of Frauds and Collateral Estoppel.
    The Defendants attorney has withdrawn due to lack of retainer and the court has given the defendant 30 days to obtain new counsel or defend himself pro se.
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    I will be helping the Defendant with an Ethics complaint, and try to figure out how to put on the best pro se defense we can along with a counter claim.
    At this point, I need to know what happens next and move this case along.
    Should we ask for more time to find a lawyer, even though all of the lawyers contacted so far will not represent on contingency?
    She we immediately let the court know that the defendant will be representing himself pro se, so that there is no delay in getting the motion to dismiss heard?
    After the issue of representation is sorted out, what is next?
    Do we wait for an answer from the Plaintiff or a ruling from the judge on the motion?
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  • when you file bankruptcy do you have to tell the bankruptcy

    when you file bankruptcy do you have to tell the bankruptcy court that you have been awarded judgements - like putting those down as assets - or do you not have to disclose that?
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