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Deposit Accounts as Collateral

Question: 
Can a legal hold be placed on a checking or money market account for loan collateral?
Answer: 

Answer by Andy Zavoina: Yes, but you must ask yourself some questions.

While a money market is by definition a savings account, it and the demand deposit (checking) account are accessed in the same manner; a check is written on the account. If you have the deposit account held as collateral and a hold shows on your system, when a check is presented for payment will you pay it or return it? Paying the item devalues your collateral. Where do you stop? Returning the item angers your customer; presumably a good customer. And there seems to be a greater likelihood of a demand deposit hold being overwritten or ignored than those on traditional savings accounts.

Most lenders find it easier to have the funds segregated into a savings where they earn some interest, but are more stable as to the loans maturity.

Answer: 

Answer by Dan Persfull: This has been discussed many times in the forums. Yes you can put a hold on these accounts, of course unless you have a state law forbidding it. However, this could be an operational nightmare. As an example, if you have the security hold on the demand account and a check comes in that will draw the balance below your security hold, will you honor it, how will your customer react if you don't?

The most efficient way to do this is to transfer the hold portion into a savings product.

First published on BankersOnline.com 5/23/05

First published on 05/23/2005

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