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#1161979 - 04/10/09 08:43 PM Certificates of Deposit as Pledged Collateral
lisa Offline
Gold Star
Joined: Aug 2001
Posts: 264
Gainesville, TX USA
We are having a discussion in our Bank regarding certificates of deposit issued to "Mr. OR Mrs. John Doe." Mr. John Doe comes into the Bank and pledges their CD as collateral. As a general practice, we also require Mrs. John Doe to sign a third-party pledge. I cannot find in the UCC where this is required; however, in our CD Terms and Disclosures it states: "Any pledge of this account (to which we have agreed), must first be satisfied before the rights of any joint account survivior." This tells me that Mrs. John Doe should also agree to the pledge - satisfied by the third-party agreement.

Any thoughts on this?

Thanks,

Lisa

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#1162101 - 04/11/09 12:16 PM Re: Certificates of Deposit as Pledged Collateral lisa
rlcarey Offline
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,219
Galveston, TX
"This tells me that Mrs. John Doe should also agree to the pledge"

What this is actually saying is that if the CD is pledged, in the event of the death one party, the pledge will be satisfied prior to any remaining funds being given to the survivor.

In Texas, you need to look at the Probate Code Section 442. On a multiparty account, either party can pledge, but the bank has to take specific action to notify the other party(s) to the account:

ยง 442. RIGHTS OF CREDITORS; PLEDGE OF ACCOUNT. No multiple-party account will be effective against an estate of a deceased party to transfer to a survivor sums needed to pay debts, taxes, and expenses of administration, including statutory allowances to the surviving spouse and minor children, if other assets of the estate are insufficient. No multiple-party account will be effective against the claim of a secured creditor who has a lien on the account. A party to a multiple-party account may pledge the account or otherwise create a security interest in the account without the joinder of, as appropriate, a P.O.D. payee, a beneficiary, a convenience signer, or any other party to a joint account, regardless of whether there is a right of survivorship. A convenience signer may not pledge or otherwise create a security interest in an account. Not later than the 30th day after the date on which a security interest on a multiple-party account is perfected, a secured creditor that is a financial institution the accounts of which are insured by the Federal Deposit Insurance Corporation shall provide written notice of the pledge of the account to any other party to the account who did not create the security interest. The notice must be sent by certified mail to any other party at the last address the party provided to the depository bank and is not required to be provided to a P.O.D. payee, a beneficiary, or a convenience signer. A party, P.O.D. payee, or beneficiary who receives payment from a multiple-party account after the death of a deceased party shall be liable to account to the deceased party's personal representative for amounts the decedent owned beneficially immediately before his death to the extent necessary to discharge the claims and charges mentioned above remaining unpaid after application of the decedent's estate, but is not liable in an amount greater than the amount that the party, P.O.D. payee, or beneficiary received from the multiple-party account. No proceeding to assert this liability shall be commenced unless the personal representative has received a written demand by a surviving spouse, a creditor, or one acting for a minor child of the decedent, and no proceeding shall be commenced later than two years following the death of the decedent. Sums recovered by the personal representative shall be administered as part of the decedent's estate. This section shall not affect the right of a financial institution to make payment on multiple-party accounts according to the terms thereof, or make it liable to the estate of a deceased party unless before payment the institution received written notice from the personal representative stating the sums needed to pay debts, taxes, claims, and expenses of administration.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#1162107 - 04/11/09 01:07 PM Re: Certificates of Deposit as Pledged Collateral lisa
Tom at HOME Offline
Diamond Poster
Joined: Oct 2005
Posts: 1,139
You will not find your answer in the law. It is case law and wisdom that encourages such practices. I could tell you a story but is it too long.

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