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Requiring All Owners Of Jointly Held Accounts Used As Collateral To Sign The Security Agreement

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We have a debate going on in our bank and would like some advice on the best course of action. Some are advocating that whenever a CD or savings account is pledged as collateral that is joint with right of survivorship, all owners of the deposit account must execute the assignment/pledge. Others are saying this is not feasible. The UCC for joint accounts seems to indicate that any party on a joint account can pledge it as security on a loan and other parties do not have recourse against the creditor IF the proper assignment or pledge has been used as the security instrument. The language is, however, ambiguous. There are definitely benefits to obtaining all account owners' signatures but it presents difficulty in obtaining them also.

Having all joint owners sign the security agreement (not the note!) is the most prudent course of action. There have been court cases in several states holding that after the death of the pledging joint tenant owner, the funds pass to the surviving joint tenants without the burden of the security interest. The rationale is that the joint owner could only pledge his own ownership interest, and that interest is extinguished upon his death.

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First published on 04/07/03

First published on 04/07/2003

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