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Roger, Attorney
Category: Business Law
Satisfied Customers: 31789
Experience:  BV Rated by Martindale-Hubbell; SuperLawyer rating by Thompson-Reuters
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My daughter is applying for a business loan. I want to use

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My daughter is applying for a business loan. I want to use a CD I have to pledge as collateral for the loan. I have no ownership in her company. The Bank is saying that I cannot use my CD unless my daughter's name is XXXXX XXXXX as well, since there would be no consideration for me with the loan. I had heard that direct family relationship was enough. Is this true? Are there any cases I could refer the Bank to in order to show them that I can pledge collateral for her loan???

There is such a thing as cross-collateralization, which allows several properties from different sources to be pledged as collateral for a loan. You can ask them about that.

Also, if the lender gets you to sign a promissory note along with your daughter, the bank is protected and you're vested to the extent that your CD could be pledged.

There are ways to do this. The lender just has to be inventive.
Customer: replied 8 years ago.
Still looking for the consideration issue question, not how it can be done, but is there legal consideration if I just pledge collateral without going on the loan. Cross collateralization is not the question.
You would have to sign an agreement with the bank giving it rights to the CD in the event that your child defaulted.
Customer: replied 8 years ago.
So there would be consideration in this case? My question is consideration, not what I would need to do. Legally, if my daughter defaults, is there consideration enough for the bank to take my CD even though I have no ownership in the business and am not on the note???
Consideration is anything of value that the lender is willing to accept. A CD would definitely qualify as consideration.

If you're willing to pledge the CD to the bank, and sign the proper paperwork agreeing to remit the value of that account in the event of a default, the bank can accept the property as collateral.
Customer: replied 8 years ago.
<p>I guess I am asking the question incorrect. </p><p> </p><p>What is MY consideration in this deal? Do I have any, and is it enough for the Bank to take my CD should my daughter default. It seems to me that I am not getting anything of value in this transaction.</p>
Sorry for the misunderstanding. There is no consideration for your pledge of collateral - it's like co-signing for a vehicle. You get no benefit and 100% exposure.

Customer: replied 8 years ago.
<p>So the bank really is not gaining anything from taking my CD as collateral? She defaults, they go for the CD, and I tell them they cannot have it because even if I signed, I did not get consideration for my contract, therefore, they cannot legally take my CD???? Remember, I will not be on the note, and the CD is owned solely by me.</p><p> </p><p>Last time sir, sorry for the confusion</p>
<p>The bank is gaining something - access to your CD in the event of a default. If you pledge your CD and your daughter defaults, they'll take the CD. Whether or not you get anything of value from your daughter is between you and her, and has nothing to do with the bank's collateral. </p><p> </p><p>Consideration is not monetary here - consideration is in the value of you helping your daughter get financing. </p><p> </p><p>It's not going to work out that way. The bank will make sure in the paperwork that consideration is identified. </p>
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