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Need your opinions on a hypothetical [both coin and real estate based].
SanctionII
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Coin hypothetical -
Lender Arnie loans funds a $100K loan originated by Coin Broker Bernie M. The loan is made to coin owner Bill. Bill gives a promissory note, a Security Agreement and UCC-1 Financing Statement to Coin Broker Bernie M. plus physical possession of a gold coin collection worth $300,000.00. On the day the loan closes Coin Broker Bernie M. assigns the loan to Lender Arnie and gives the original promissory note, the original Security Agreement and the original UCC-1 Financing Statement to Lender Arnie. However, Coin Broker Bernie M. keeps possession of the gold coin collection. The loan requires that coin owner Bill make monthly payments of interest only. The term of the loan is three years, at which time the $100k must be paid back. Without giving thought to who would service the loan [there is no loan servicing agreement], coin owner Bill makes loan payments to Coin Broker Bernie M. for the first three months of the loan. Coin Broker Bernie M. makes interest payments to Lender Arnie for these same three months. In month four, Coin Broker Bernie M. repeats the above transaction, this time having Lender Doug fund a new $150K loan to coin owner Bill on the same $300,000.00 gold coin collection. Instead of Coin Broker Bernie M. paying off Lender Arnie the $100K balance owed to him under his loan, Bernie M. just keeps $100K of the money loaned by Lender Doug and gives the remaining $50K to Bill. Coin Broker Bernie M. then continues to make monthly interest payments to Lender Arnie until 1-2012, when Bernie M. flees the country. However, he leaves the $300,000.00 gold coin collection in his office safe, where it is found by the police when they raid the place.
Lender Arnie and Lender Doug both assert that they have a security interest in the $300,000.00 gold coin collection owned by Bill. Bill wants to pay back the $150K that he believes he owes and get possession of his coins back from the police. Lender Arnie wants his $100K. Lender Doug wants his $150k.
As between Lender Arnie and Lender Doug, who has a perfected security interest in the coin collection? If both have a perfected security interest in the coin collection, who has the senior lien [and thus stands in line to be paid first]?
Real estate hypothetical -
Same as the coin hypothetical, except that Lender Arnie loaned over $2 million; lender Doug loaned over $5 million; real estate broker Bernie stole from the $5 million in loan proceeds from the loan made by Lender Doug the $2 million that should have been paid to Lender Arnie to pay off his loan; the collateral given to secure both loans is a 35 unit apartment building; Bill the owner of the collateral stopped paying on the $5 million loan; and lender Doug foreclosed and took ownership of the apartment building only to discover that Lender Arnie's $2 million loan is still recorded against the apartment building.
As between Lender Arnie [who claims a first lien on the property to secure his $2 million loan] and Lender Doug [who now owns the apartment building due to the foreclosure of his $5 million loan] does Doug have to pay Arnie, or does Arnie not have a valid lien on the property?
Under both hypotheticals, what issue(s) would you want to investigate and resolve before you decide who gets paid first?
The reason for this thread is:
1. Curiosity about your opinions/answers to the questions posed; and
2. A colleague may refer a real estate case to me with facts similar to those described above.
Lender Arnie loans funds a $100K loan originated by Coin Broker Bernie M. The loan is made to coin owner Bill. Bill gives a promissory note, a Security Agreement and UCC-1 Financing Statement to Coin Broker Bernie M. plus physical possession of a gold coin collection worth $300,000.00. On the day the loan closes Coin Broker Bernie M. assigns the loan to Lender Arnie and gives the original promissory note, the original Security Agreement and the original UCC-1 Financing Statement to Lender Arnie. However, Coin Broker Bernie M. keeps possession of the gold coin collection. The loan requires that coin owner Bill make monthly payments of interest only. The term of the loan is three years, at which time the $100k must be paid back. Without giving thought to who would service the loan [there is no loan servicing agreement], coin owner Bill makes loan payments to Coin Broker Bernie M. for the first three months of the loan. Coin Broker Bernie M. makes interest payments to Lender Arnie for these same three months. In month four, Coin Broker Bernie M. repeats the above transaction, this time having Lender Doug fund a new $150K loan to coin owner Bill on the same $300,000.00 gold coin collection. Instead of Coin Broker Bernie M. paying off Lender Arnie the $100K balance owed to him under his loan, Bernie M. just keeps $100K of the money loaned by Lender Doug and gives the remaining $50K to Bill. Coin Broker Bernie M. then continues to make monthly interest payments to Lender Arnie until 1-2012, when Bernie M. flees the country. However, he leaves the $300,000.00 gold coin collection in his office safe, where it is found by the police when they raid the place.
Lender Arnie and Lender Doug both assert that they have a security interest in the $300,000.00 gold coin collection owned by Bill. Bill wants to pay back the $150K that he believes he owes and get possession of his coins back from the police. Lender Arnie wants his $100K. Lender Doug wants his $150k.
As between Lender Arnie and Lender Doug, who has a perfected security interest in the coin collection? If both have a perfected security interest in the coin collection, who has the senior lien [and thus stands in line to be paid first]?
Real estate hypothetical -
Same as the coin hypothetical, except that Lender Arnie loaned over $2 million; lender Doug loaned over $5 million; real estate broker Bernie stole from the $5 million in loan proceeds from the loan made by Lender Doug the $2 million that should have been paid to Lender Arnie to pay off his loan; the collateral given to secure both loans is a 35 unit apartment building; Bill the owner of the collateral stopped paying on the $5 million loan; and lender Doug foreclosed and took ownership of the apartment building only to discover that Lender Arnie's $2 million loan is still recorded against the apartment building.
As between Lender Arnie [who claims a first lien on the property to secure his $2 million loan] and Lender Doug [who now owns the apartment building due to the foreclosure of his $5 million loan] does Doug have to pay Arnie, or does Arnie not have a valid lien on the property?
Under both hypotheticals, what issue(s) would you want to investigate and resolve before you decide who gets paid first?
The reason for this thread is:
1. Curiosity about your opinions/answers to the questions posed; and
2. A colleague may refer a real estate case to me with facts similar to those described above.
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Comments
i just add...man i'm glad i don't have to deal with crapola like this...
i'd buy um pistols and tell um to walk 20 paces then turn n shoot...worked in tha ol daze...
good news utter then i stayed at a motel 6...you don't have to take such cases i presume
Good luck with that.
With the real estate deal, in my state, a title company is usually doing title searches and disbursing funds. Arnie should have a lenders title policy showing them in first. Doug would turn to their title policy for coverage, but this seems way more complicated than that.
Have fun.
Andrew
Please visit my website Millcitynumismatics.com
It would be different for real estate, of course.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
Bernie M took out a loan on assets that he does not own - believe that is a felony.
Bernie M is acting as a bank - loaning funds, receiving payments, making payments- strike 2 for him.
Lender Arnie knowingly gave a loan on property he KNEW was not owned by the person (Bernie M) - Arnie is out 150K.
Bernie M took out another loan on assets not owned by him - strike 3.
Lender Doug is probably out 150K as well.
When you dig further, it sounds like Arnie, Bernie M, and Bill M are in collusion.
Hypo 2 - Lender Doug did NOT investigate the title well enough. Probably out 2 million.
Bernie will be spending time in jail.
...and at the end of the day, Bernie in scenario one will probably spend 10 actual years in prison.
Bernie in scenario two will probably get off with probation and restitution....at most.
I'll get back with you if she can do that.
Two Words BAIL OUT
If Doug did not file a UCC, Arnie has hands down the perfected security interest. Regardless, Arnie should get paid first as he would be in senior lien position. (Presumably the UCC was assigned to Arnie when the loan was assigned - if not, there could be different issues.)
As for the real estate, Arnie should still prevail. Not sure how Doug could foreclose without a clean title search. Maybe that varies by state.
edit: replaced bernie with doug in first sentence. too many players.
No Way Out: Stimulus and Money Printing Are the Only Path Left
<< <i>wife typing:
If Bernie did not file a UCC, Arnie has hands down the perfected security interest. Regardless, Arnie should get paid first as he would be in senior lien position. (Presumably the UCC was assigned to Arnie when the loan was assigned - if not, there could be different issues.)
As for the real estate, Arnie should still prevail. Not sure how Doug could foreclose without a clean title search. Maybe that varies by state. >>
I was wondering if this was a trick question.
I was thinking Arnie for both, too, but felt unqualified to say.
What paperwork was filed by absconder Bernie M for the second loan?
One of those "B" boys will end up in the big house. San Quentin in California, I believe. There
he will not have much fun.
The real estate will go to tax sale as nobody knows who should pay the taxes during the six years,
two trials and 200 depositions.
Atty Sanction, being wise, will have paid the taxes out of the goodness of his heart as he knows
that all the parties are stressed and broke now. Then he ends up with a Treasurer's Deed and
the property which is generating $4,500 per month at this point.
That about covers it.
bob
Oh, wait, could you repeat the question, please?
If the second loan was more like a line of credit, where the recipient can do whatever he wants with the money...even buy a boat with it ...then the second lender didn't really do anything wrong.
The first lender in no way screwed up and is entitled to something...thats open and shut in my mind.
The apartment owner/borrower may still be in trouble depending on his relationship with the broker. The second bank will probably try to prove that the broker was an agent for the coin owner. If they can do that, then they may be off the hook regardless of whether the money was earmarked or not. I always believed that if your agent does something bad, you are in trouble.
So to me, the case boils down to whether the second loan was earmarked, and whether the guy who skipped town was an agent of the buyer or not. Those are the points I would investigate the most.
Note, I'm not a lawyer, but I took a law class once.
Steve