Sabol bank loan
A) Sabol applied for a bank loan
B) Sabol signed documents; a promissory note assigning rights of collateral, a letter of rights for execution, filing and recording of financial statements, to Morton Community Bank.
C) Sabol did not sign any paper that described any collateral.
D) Sabol defaulted on loan and filed bankruptcy.
E) Morton Community Bank wants to attach recording equipment of Sabol’s citing it as collateral signed for purpose of loan.
Sabol borrowed $58,000 from Morton Community Bank. The intended collateral was his recording equipment. Three years later Sabol filed bankruptcy and had defaulted on his loan to Morton Community Bank. Morton Community Bank felt that Sabol’s recording equipment was part of a secured interest for the loan that was approved. The collateral description and additional financial papers carried no description of any collateral and none of the papers that Sabol did sign mentioned collateral or the loan being secured.
3. Rules and analysis:
Secured loans must have an attached security/collateral. Creating a secured interest includes collateral being in possession or a written description of the collateral by the debtor and the secured party must sign this description. Further the secured party must have rights in the collateral. The debtor’s instruments of the loan
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Sabol did not sign any actual description of collateral so therefore this loan was not considered secured. In this Morton Community Bank may not attach Sabol’s recording equipment and though the bankruptcy court may determine that Sabol has to sell his equipment though that is not the issue here.