Bank loan officers should stay out of collectibles. They have no idea of the value or the authenticity of what they are lending against, and they can lose their depositors' money to a loan fraud or an insurance fraud crafted by a scoundrel.
How a million-dollar fraud is built
A collector bought a badly damaged American painting for $25,000, had it repaired, and had an associate appraise it at $650,000. He took that false appraisal to a friendly Virginia banker and borrowed $400,000 against it — then sold the same painting to a novice collector in Wisconsin for $650,000 without telling the bank. He never repaid the loan and never refunded the buyer. The bank's lien let it seize the painting from the novice, who lost $650,000; the bank was left holding a $25,000 painting it had loaned $400,000 on. The scoundrel walked away with a cool $1 million.
A word to the wise banker: stay with real estate and what you know about.
The conflict at the center
- The appraisal written by an "associate" of the seller — never independent
- Liens that follow the object, not the fraudster
- The UCC lien check that should happen before any money changes hands
- Why the only safe appraiser is one with no stake in the sale