Legal Question in Credit and Debt Law in Maryland
Cross Collateralization of Secured and unsecured Credit
If you have an auto loan with a Fed Credit Union (They are in TX), and later take out an unsecured line of credit (keep in mind that a higher interest rate charged because it is unsecured)with them, can they cross collatterilize the LOC. That is, if you were late on the LOC payment, could they repo the car?
2 Answers from Attorneys
Re: Cross Collateralization of Secured and unsecured Credit
Depends on the terms of the written loan and security agreements. Generally, the answer is yes, they can. But you need to look at the documents to be sure - most credit union forms do provide for this cross-collateralization.
Re: Cross Collateralization of Secured and unsecured Credit
Cross-collaterization must be specifically set out in the loan document.
An unsecured loan is just that, unsecured. That means it has no asset supporting it.
A cross-collateralization clause in a loan that is titled as "unsecured" may not be enforceable.
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