Can the bank continue to hold my houses as collatoral on a business that I no longer own to see if the new owners are successful?

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Can the bank continue to hold my houses as collatoral on a business that I no longer own to see if the new owners are successful?

The business is in AZ; the bank is based in Mo. I took out an SBA loan on a business using cash and two homes as collateral. A series of events forced me to sell the business by new owners assuming the loan. They said that I did not have a say as to who I could sell my business to so they chose the buyers. However, they will not release the liens on my homes until they are satisfied the new owners are successful. The bank will also not tell me if the new owners put up collateral as well although initially the bank said they needed to secure the loan with real estate. I do not receive any profits from the business as I am no longer the owner. Is this legal? and, if it is, at what point legally can I be released from the loan? It all seems arbitrary on the banks part meanwhile the bank continues to tell me there I have no options. I was not in default.

Asked on July 9, 2018 under Business Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

Review the terms of the loan agreement. If the loan agreement states that you are still liable for or guaranty the loans even if the loan is assumed by someone else (which is not uncommon, by the way), then they do not have to release your homes as collateral until and unless the loans are paid in full. In this case, you would have contractually agreed in writing (in signing the agreement) that the bank would still have recourse to your houses as collateral  even if someone else took over the loan.
If the agreement does not provide that you remain liable under the loan, however, then you should not: they should have released your collateral once someone else assumes the loan. You could, if necessary, take legal action (i.e. sue) to force the release.


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