Equity Loans are very similar to mortgages. Usually they are loans secured by something of value, traditionally a piece of real estate that is worth more than the loan being taken out. A mortgage for an equity loan is typically recorded and though it can be a first mortgage on the property, it is often a second mortgage.
Equity loans can also be extended upon other collateral of value, such as bonds, stocks, valuable business equipment, jewelry and the like.
Fred has been married to Rachel for 26 years. Over the years they have accumulated a nice house along the water which is paid off. Fred has a 22 Foot Scooner that has a galley kitchen and sleeps six (6). Rachel has four (4) collectible fur coats that she has kept in mint condition and lots of diamond jewelry including necklaces, anklets, bracelets and rings that she only wears for special occasions.
Fred has kept the finances, but he hasn't done it very well and after he and Rachel retire, he realizes they have no liquid cash coming in to sustain their lifestyle.
Fred panics as Rachel tells him she's going shopping at Carte Blanche. Scrambling to figure out what to do Fred finds the deed to his schooner and grabs the three most valuable peices of jewelry that he bought for Rachel.
While Rachel is gone Fred runs out and has the jewelry appraised and gets a value assigned to his Scooner. Fred then runs down to Focus One Finance and applies for a loan by pledging the equity in the jewelry and his schooner. Focus One Finance holds the title to the schooner and records a lienholder statement against it. Focus One Finance also holds the jewelry and tell Fred that he'll get all of this back when he satisfies his Equity Loan terms. Focus One Finance wires $85,000 to Fred's bank just in time for Rachel to make a purchase with her MasterMoney Card.
Fred rushes back home feeling that he has put an end to the crisis.
Two weeks later Fred gets his first Equity Loan Statement. He doesn't want to pay it out of the monies he got so he puts it in a drawer. A month later another statement comes with a double payment due and penalty fees. Again Fred stuffs it in the drawer, not wanting to deal with it at this time.
Finally in the third month Fred knows he can't avoid this anymore, but rather than pay the statement he waits until Rachel is out of the house and he takes her two best fur coats and runs down to Focus One Financial. At first Fred offers them as payment and tells Focus One that the fur coats are worth much more than the payments due, but Focus One Financial wants payment ...they do not want to barter. Financial Focus One states that the best it can do is re-finance his loan and capitalize the interest and penalties and hold the garments as additional collateral since he did not make the first three payments. Fred agrees and returns home.
A week later Fred and Rachel are invited to a formal dinner event. Rachel immediately notices that several of her best peices of jewelry are gone and so are her fur coats. Rachel insists on calling the police but Fred urges her to keep looking. After about an hour, Fred breaks down and tells Rachel the whole story. Rachel is furious! She demands that he go right down and get her furs and her jewelry back immediately. Fred goes to Focus One Financial but they will not release the items until he fulfills the Equity Loan. Fred checks the checkbook. There is only $5,300 remaining in the account. Fred goes back and checks all the entries and they are all purchases that Rachel made for herself.
Fred returns to explain to Rachel why he can't get the items back. Rachel quickly packs a suitcase, takes her debt card and their check book and leaves.
The next afternoon Fred is served with divorce papers. Fred goes down to the bank to get some monies to hire an attorney. The ATM gives him $300 and then says $0 balance. Rachel had withdrawn the other $5,000, presumably to hire her attorney.
How might this mess be dealt with by the Rhode Island Divorce Court?
Fred didn't tell Rachel about the equity loan. Is Rachel likely to be held responsible for the equity loan given that circumstance?
Fred pledged Rachel's jewelry and fur coats as collateral against the equity loan. In the divorce proceeding could Rachel get them back from Focus One Financial without paying off the equity loan?
Rachel used up virtually every dime of the equity loan money. Even if Rachel didn't know where the monies came from, might she be held responsible for the loan as well since she received the benefit of the monies?
Is the Equity Loan a marital debt such that the Rhode Island Family Court has the power to determine its apportionment and assignment, or does Fred's conduct in deceiving Rachel render this his own private debt?
There are three (3) other issues (Questions) in this case that you should spot. Can you see them?
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