Loan collateral question
 

Back when I bought my boat, went to the local bank, and borrowed money to buy the boat. They cut me the check, which was made out to the seller. Purchased the boat, and recieved the title.

1 1/2 yrs have gone by, and a few weeks ago I was going thru some papers. Found the title to my boat. The bank had never asked me for it. So i looked at all the orginal loan documents, and while it does list a Formula boat as collateral, it doesnt list a HIN, or anything specific to the boat. As a matter of fact, the year isnt even correct nor a model number.

Anyhow, I have made all my payments, no issues there. As a matter of fact the manager there is sort of a friend of mine.

I have my boat listed for sale, and plan to buy something else(downsizing to maybe a 30-32ft). Here is my question, if my boat is free of any liens, and the buyer made the check out to me, would it be fraudulent to take the money and buy a different boat? Im guessing the current loan is more of a signature type of loan?

The only reason this has crossed my mind is that with the current economy, and reading how tough it is to get any kind of financing right now with the economy, I'd hate to sell my boat, re-apply for a new loan and get declined. I suppose i can call my bank for a pre-approval. Loan balance is like 25k ish.

Well, it would appear that your bank has a collateral perfection issue assuming in your state that a title is required. Look in the security agreement portion of the papers and see what is listed.

Is it fraud if you sell the boat and don't pay off the loan? If your application says it is to buy a boat and is to be secured then you intended to secure it. If you sell the collateral that was intended to be pledged you could have a problem if you end up defaulting and in court but it appears your bank has some issues too.

If you call the bank you're opening up the can again and in a worst case the bank can ask you to bring in the collateral intended, if you say no, they can call the note due, so you have some risk.

Only you can decide what you think is right. You intended to pledge the boat, if your new boat is worth more than the old one I'd bet the bank would have no problem in substituting the collateral and leaving the note the same but some banks are doing funny things these days.

I'd try pre approval...

Thanks, thats some good insight. Im thinking just call my friend at the bank and run my deal by him. In my loan papers, it does show secured, "1985 Formula Boat" Although it is a 1983 Formula boat. Weird thing is they never asked for HIN numbers, or anything looking back now. Guess I must have had really good credit or just someone screwed up! lol

I remember when applying for the loan, I had printed out the NADA value for them as they didnt really even know how to value "boats".

On my Pantera, the bank realized after about 5 years that they didn't have my title and sent me a letter requesting it. I still had it from when I purchased it and mailed it to them.