Cross-collateralization clauses

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Question:

When a customer at our bank comes in to do a $1000 personal unsecured loan and we hold a mortgage on their home prior to this loan, that has an additional advance clause, if we uncheck the box on the new $1000 loan that refers to cross collateralization, are we securing the loan with the real estate anyway, due to a previous security agreement being in the customers file? Would unchecking the box on the loan that says "collateral securing other loans from lender may also secure this loan" cover that bases for compliance?

Answer:

Unchecking the box and showing that the loan is unsecured should be sufficient, but you should verify this with counsel or your forms provider. Often the second loan will have a disclaimer in the text so that a principal dwelling is excluded from your collateral. This avoids rescission issues.

First published on BankersOnline.com 10/20/03