Answer:
When you cross-pledge collateral from one loan to another, you must be aware of rescission issues and ownership. That is, if a loan is renewed or refinanced and a dwelling is involved, is a rescission notice required? Do your standard loan documents otherwise exclude a rescission applicable dwelling? If they do, and many forms do, would another agreement that includes the dwelling take precedence or cause confusion and be voided because of this? As to ownership, is all the collateral owned by the same entity and able to be cross-pledged? Doing this may require subordination agreements and additional signatures.
At the end of the day, check with counsel and be prepared to answer the questions above.
First published on BankersOnline.com 7/01/13
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