Collections in Connecticut: How Creditors Can Pursue Multiple Collateral Sources Simultaneously
by Lucas B. Rocklin
December 5, 2019Introduction
Creditors often receive more than one source of security for their commercial loans. Often, this is a mortgage on the borrower’s real estate, and a security interest in the borrower’s personal property (e.g. equipment, machinery, inventory, accounts receivable, etc.). If the loan goes into default, it is permissible, and sometimes advisable, for the creditor to simultaneously pursue the recovery and liquidation of more than one security source. This would be the case if the creditor would not be made whole (full loan satisfaction) through the liquidation of only one collateral source. For example, if to secure a $700,000 loan, the creditor held a $400,000 mortgage on real estate and a $400,000 security interest in personal property, the creditor would be prudent to seek the simultaneous recovery of both asset sources, as either one alone would be insufficient to satisfy the loan indebtedness.
How to Pursue the Simultaneous Recovery of Multiple Collateral Sources
Keeping with the above example, the creditor would commence a mortgage foreclosure to liquidate the real estate collateral, and at the same time, file a replevin action to obtain possession of and liquidate the personal property collateral. By statute [Conn. Gen. Stat § 52-55], replevin and foreclosure cannot be combined in a single lawsuit. Connecticut courts have authorized the filing of multiple concurrent lawsuits to permit the recovery of separate asset sources securing the same loan. A recent decision approving this collection method is Newtown Sav. Bank v. Preferred Printing Co., Inc. No. FBTCV196083447S, 2019 WL 3318473 (Conn. Super. Ct. June 5, 2019).
Newtown Savings Bank v. Preferred Printing Co., Inc.
In this case, Newtown Savings Bank (“Bank”) held two forms of collateral (real estate and equipment) as security for three loans made to its borrower, where the loan debt exceeded the value of either single security source. Following default on the loans, the Bank commenced foreclosure and replevin lawsuits to recover the real estate and equipment collateral. The borrower challenged the Bank’s efforts, by filing a motion to dismiss the replevin action, arguing that the Bank should be prevented from pursuing two lawsuits involving the same loans. The court rejected the borrower’s argument, permitted the Bank to proceed with both lawsuits in parallel, and ultimately entered judgments (foreclosure and replevin) for the Bank in each action.
The court, in reaching its decision, noted that (i) the recovery and liquidation of either single collateral source (real estate or equipment) would be insufficient to satisfy the loan debt, (ii) the Bank by law could not combine foreclosure and replevin causes of action in one lawsuit, and (iii) to make the Bank wait to pursue the replevin action until after it completed the foreclosure action (the remedy sought by the borrower) would be highly prejudicial to the Bank’s efforts to be made whole, due to delay, depreciation, possible removal of the equipment and related concerns.
Conclusion
Creditors who have multiple forms of collateral, but are undersecured through any single source, should consider seeking the simultaneous recovery of more than one security source upon loan default. This increases the likelihood that the creditor will obtain a full recovery and do so expediently and efficiently.
Disclaimer This article is for educational purposes only and to give you a general understanding of the law, not to provide specific legal advice. No attorney-client relationship exists by reading this article. This article should not be used as a substitute for legal advice from a licensed professional attorney in your state.
Lucas B. Rocklin is a creditor rights attorney. He has extensive experience in representing financial institutions and creditors in workout and litigation matters (commercial and consumer) including collections, foreclosures, bankruptcy and landlord-tenant litigation. Attorney Rocklin also practices labor law including collective bargaining agreement negotiations and arbitrations.