Banks and Financial Institutions
We routinely counsel, advise and represent banks, credit unions and other financial institutions on a broad range of topics, from documenting loans to workouts, replevins foreclosures and the sale of other real estate owned (“OREO”) property.
Frequently Asked Questions
How do I best cross-collateralize loans?
Cross-collateralized occurs when either: (i) using the same asset(s) to secure one or more loans made to the same party; or (ii) using the same asset(s) to secure one loan made to one party and another loan made to a second party. In either situation, the loans may be cross-collateralized in one of two ways. First, loans may be directly cross-collateralized by including language in the security agreement (or mortgage) that indicates the asset(s) “secures the two loan made to a party” or that the asset(s) “secures all debts of party one and party two.” Alternatively, loans may be cross-collateralized indirectly by including language in the security agreement that indicates the asset(s) “secures all obligations to the lender.” If there is one borrower, this would secure all of their obligations. If there are two borrowers, you would need each borrower to guarantee the debts of the other borrower. By doing so, you create an “obligation” for that borrower and therefore such obligation is secured.
Should I have a separate security agreement?
Although security agreements may be part of the promissory note, it is usually a best practice to have a security agreement that is separate from the promissory note because to include all the terms needed to properly protect the secured creditor in the note may make the note cumbersome.
Should I have co-borrowers or guarantors?
While it largely depends on the type of transactions, there is a potential risk inherent with the use of co-borrowers. A co-borrower may later be deemed to be an accommodation party and therefore given common law defenses of a guarantor. However, these common law defenses are normally expressly waived in the language of a guaranty. This risk can be accounted for within the body of the promissory note by including proper waiver language.