ABC NEWS – Bank of America is suing in the United States District Court for the Northern District of Georgia and two real estate executives, Harold Barry and Christian Schoen, for failing to deliver scheduled artworks used as loan collateral and the proceeds promised from a completed sale of a Warhol painting. Barry and Schoen defaulted on a loan in 2007 which they guaranteed in part through pledging their artwork as collateral. To continue reading, click here.
ARIS Commentary: As banks are increasingly accepting art as collateral for loans, so too is the expected default rate on art loans, an occurrence which brings into focus U.S. and international banking regulatory requirements to de-risk non-traditional collateral such as fine art and important collectibles. Banks face exposure on recovery and sale of art collateral; in particular, upon guaranteeing clear legal title for sale they are open to claims from title risks existing before the loan due to the inherent opaque, unregulated nature of the art market in addition to lingering default-related title challenges between the bank and the borrower, which can depress marketability and values at sale.