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#57012 - 01/27/03 08:04 PM
jewelry as loan collateral
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Gold Star
Joined: Dec 2001
Posts: 292
New England
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The bank has taken as loan collateral a 7.5 carat diamond ring and diamond bracelet. The client is wearing the collateral. The bank has been listed on the client's insurance as loan loss payee and the bank has filed a UCC along with the appraisal on the ring and bracelet with the Sec of State's office.
Any thoughts on the adequacy of this arrangement? I had expected that the bank would hold the collateral in its vault under joint custody. But this is an unusual transaction for this bank.
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My opinions are not legal advice, not my employer's, and may change anytime.
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#57013 - 01/27/03 08:08 PM
Re: jewelry as loan collateral
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10K Club
Joined: Sep 2002
Posts: 13,965
TN
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This is new to me. I would assume (and you know where that gets you) that the bank would want possession.
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#57015 - 01/27/03 08:22 PM
Re: jewelry as loan collateral
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Gold Star
Joined: Dec 2001
Posts: 292
New England
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The bank obtained an appraisal, I presume from a knowledgable person.
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My opinions are not legal advice, not my employer's, and may change anytime.
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#57016 - 01/27/03 08:31 PM
Re: jewelry as loan collateral
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Diamond Poster
Joined: Jul 2002
Posts: 1,678
United States
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I agree with Autumn, I would want to actually have the (real) rock in a safe place, under the bank's control. That type of collateral could be lost or stolen very easily.
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Opinions expressed are solely my own.
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#57017 - 01/27/03 08:36 PM
Re: jewelry as loan collateral
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Platinum Poster
Joined: Jan 2003
Posts: 921
Down South, USA
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Unlike autos and real estate, there is no mechanism for registering your interest in jewellery, so although you have registered your interest in the insurance, you are still exposed to the risk of a fraud by the borrower who sells your collateral and defaults on the loan.
I would say that you should have the original gems in your vault.
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This is my opinion; it is not legal advice, nor the view of my employer, and it may change tomorrow.
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#57018 - 01/27/03 08:41 PM
Re: jewelry as loan collateral
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Power Poster
Joined: Jul 2001
Posts: 3,708
Las Vegas Nevada
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IMHO This is an unsecured loan in disguise. How would you ever repossess the collateral? and What ever possessed a loan officer to take this as collateral?
I won't even go into all the ways the value of jewelry is effected, but unless the loan officer knows them, and has documentation from a reliable independent third party you can't even begin to determine a value. If the loan to value was based on the retail value established by an appraisal provided by the borrower you have another problem.
Borrowing on a luxury item like this would make me question financial ability. I hope there is a good primary and secondary source of repayment other than the sale of the diamond.
You are correct the collateral should be locked up in the banks vault. They want to wear it, pay off the loan.
IMO The borrower should qualify for this unsecured and if not pass
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#57019 - 01/27/03 08:50 PM
Re: jewelry as loan collateral
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Gold Star
Joined: Jun 2002
Posts: 299
Midwest
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Around here we call that psychological collateral. There's nothing there other than the borrower or the bank might think there's collateral.
There are some goods you can perfect against only by possession. Gold bars, rare coins, jewelry and such fall into that category.
If the loan goes into default, good luck finding the rock you think you had.
Reminds me of the story of crooked jewelers who clean rings for free but switch worthless stones for the good ones while the customer waits for the cleaning (or would that be a hosing?).
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Sponge Steve, CRCM, CBA
Opinions expressed are mine and not my employer's
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#57020 - 01/27/03 08:51 PM
Re: jewelry as loan collateral
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10K Club
Joined: Oct 2000
Posts: 27,763
On the Net
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This was always a dangerous loan. I've never done one, but for security you'd want pictures, a credible valuation and the jewelry secured in your safe deposit box for safe keeping.
Otherwise, what do you do if the items are lost in luggage, went down the drain, etc.
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AndyZ CRCM My opinions are not necessarily my employers. R+R-R=R+R Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell
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#57021 - 01/27/03 08:53 PM
Re: jewelry as loan collateral
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Gold Star
Joined: Jun 2002
Posts: 299
Midwest
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Even pawn shops take possession....
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Sponge Steve, CRCM, CBA
Opinions expressed are mine and not my employer's
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#57022 - 01/27/03 08:59 PM
Re: jewelry as loan collateral
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Gold Star
Joined: Oct 2002
Posts: 422
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I agree with the concensus. Either label it an unsecured loan (and all that goes with that) or take possession of the jewlery until payoff.
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Michelle M
Opinions do not necessarily reflect those of my employer nor are they legal advice
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#57023 - 01/27/03 09:16 PM
Re: jewelry as loan collateral
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Power Poster
Joined: Apr 2001
Posts: 4,828
Between the lines
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This thread reminds me of something I once heard---wearable collateral and walking collateral have one thing in common-----they can (& often do) both walk away!!
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#57024 - 01/27/03 09:22 PM
Re: jewelry as loan collateral
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Gold Star
Joined: Oct 2002
Posts: 422
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Why a house makes better collateral than Jewlery... ......... You can't skip town with a house.
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Michelle M
Opinions do not necessarily reflect those of my employer nor are they legal advice
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#57026 - 01/27/03 09:30 PM
Re: jewelry as loan collateral
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Gold Star
Joined: Oct 2002
Posts: 422
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??? huh???? You can skip town with a house? ... a whole house? ... or are me talking mobile home?
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Michelle M
Opinions do not necessarily reflect those of my employer nor are they legal advice
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#57028 - 01/27/03 09:41 PM
Re: jewelry as loan collateral
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Diamond Poster
Joined: Jun 2001
Posts: 1,339
TX
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Reminds me of this . . .
Q: In Arkansas, how are a divorce and a tornado alike?
A: Either way, somebody's losin' a trailer.
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Opinions are mine not my employer's, and should not be taken as legal advice.
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#57029 - 01/27/03 09:41 PM
Re: jewelry as loan collateral
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Power Poster
Joined: Nov 2001
Posts: 7,988
FINALLY ABOVE the gnat line
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Without possession you have a violation of the FTC's Unfair and Deceptive Credit Practices Act. Section 227.13 indicates, "It is an unfair act or practice for a bank to enter into a consumer credit obligation that contains any of the following provisions, ....(d) a nonpossessory security interest in household goods other than a purchase money security interest." "Jewelery" is included in the definition of household goods in section 227.12(d). You may also find this in Reg. AA. If this is a nonpurchase money, consumer loan - you might have a little regulatory problem.
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#57031 - 01/28/03 12:11 AM
Re: jewelry as loan collateral
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Gold Star
Joined: Jun 2002
Posts: 299
Midwest
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Good catch, Louvera.
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Sponge Steve, CRCM, CBA
Opinions expressed are mine and not my employer's
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#57032 - 01/28/03 01:05 PM
Re: jewelry as loan collateral
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Gold Star
Joined: Dec 2001
Posts: 292
New England
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Thank you for the insight on FTC rules. This loan, however, is a commercial loan.
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My opinions are not legal advice, not my employer's, and may change anytime.
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#57033 - 01/28/03 01:08 PM
Re: jewelry as loan collateral
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Gold Star
Joined: Dec 2001
Posts: 292
New England
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Re: "There are some goods you can perfect against only by possession. Gold bars, rare coins, jewelry and such fall into that category."
The bank has filed a UCC on this jewelry. Are you saying that a provison of law makes this filing of no effect?
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My opinions are not legal advice, not my employer's, and may change anytime.
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#57034 - 01/28/03 01:50 PM
Re: jewelry as loan collateral
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Power Poster
Joined: Dec 2000
Posts: 3,455
The Pennant Race
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There is a strong possibility that if your borrower wanted to, they could sell your collateral without your knowledge and consent.
Jewelers are not very likely to check with the county courthouse or secretary of state (or whoever handles filings in your state) to determine whether or not the jewelry they are about to buy is subject to a security interest.
The average consumer on e-bay or who reads your newspaper is even less likely to do so.
Even if you managed to track the jewelry once it is sold, I find it unlikely that the courts would punish a buyer who purchased the jewelry in good faith just to protect you from your lack of foresight.
Collateral has value as collateral only if you can actually sell it to recover your loan. Bankers would take possession of business furniture, fixtures, and equipment if it wasnt for the fact that the business could not operate if they did.
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The opinions expressed here are personal and do not represent opinions of my employer.
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#57035 - 01/28/03 02:03 PM
Re: jewelry as loan collateral
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Power Poster
Joined: Jan 2003
Posts: 3,070
Oklahoma
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We have taken diamonds as collateral a few times. We have the customer get a current appraisal from a jeweler, which can identify the stones and establish collateral value. Then we open a safety deposit box, bank and customer on signature card. The Bank's key can go in your collateral vault. In addition, all parties should be present when collateral is put in box. This way there cannot be any question of switching diamonds at the time the collateral is being released.
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