Selling collateral property

[Worried12345]

Jurisdiction

Arkansas

I'm not sure I'm asking my question in the correct place.

I have a friend who has a decent size farm with chicken houses and cows. When he got the farm he already owned a mobile home that he had moved to the farm. At some point the mobile home was put up in some part as collateral in some farm upgrades. Several years ago part of the farm flooded and the mobile home suffered some damage. They were told by the insurance adjuster that the roof was past it's life expectancy so the insurance didn't cover the roof repair. A few years later there was another flood that caused much more damage to the mobile home including the roof caving in. At this point my friend thought that the mobile home was not worth repair. Someone offered to purchase the mobile home to repair it. The mobile home was sold and my friend purchased a "tiny home" and continues to live there. Now the bank is saying that collateral property shouldn't have been sold and that they owe the bank for it. I'm not sure how this works. I realize payments or anything would be up to the bank, but can my friend go to jail for this?



Thanks in advance for all of your help!



Sincerely,

Worried12345

 

[army judge]

I believe what the bank claims is a right to all appurtenances.

An appurtenance is anything attached to a piece of real estate (property) or any building such that it becomes a part of said property, and could be passed on to a new owner when the property is sold.

Examples of appurtenances are: a garage, septic system, water tank, a mobile home (as in the one you discussed above) or something abstract such as an easement or right of way.

By selling the mobile home, no matter how dilapidated, he sold property belonging to the lender.

I suggest you advise your friend to discuss the matter with a real estate attorney, or any licensed attorney in Arkansas.

The bank appears to have a legitimate, maybe actionable, concern.

 

[adjusterjack]

can my friend go to jail for this?

No. He didn't commit a crime.

He just breached his loan contract which could make the entire loan balance due and payable.

If the mobile home and his property were rolled in together for a refinancing of the entire property he could very well lose the farm in foreclosure if he can't come up with the balance in full.

I suspect that there is more to the story. Has your friend fallen on hard times and defaulted on the loan? Seems to me that the lender would have no way of knowing that the mobile home was sold if payments were routinely made on time.

 

[Worried12345]

There have been no defaults on the loan. The loan was set up where the bank automatically takes the payment out of the deposit from the chicken company and the remainder of the check is then deposited to my friends account. There is over $150,000 equity built up in the farm if that matters at all. The bank makes routine something like "property assessments" and that's when it was noticed.

 

[army judge]

The bank makes routine something like "property assessments" and that's when it was noticed.

Those property assessments are to protect the lender.
Think of it this way.
A person buying a home doesn't own the home.
If that person were to "sell" a bedroom in the home for $15,000, imagine the outcry.
You can't legally sell that which you don't own.
The mobile home was secured by the lien on the loan and property.
Your friend needs to consult a lawyer licensed in your state.

 

[adjusterjack]

There have been no defaults on the loan.

It could very well be that selling part of the collateral was an event of default. You'll have to read the loan contract, but my guess is that it's in there.