15 Mar 21

New York Penal Law 185.05: Fraud involving a security interest

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Last Updated on: 17th August 2023, 06:52 pm

A Guide to Security Interests and Fraud Involving Security Interests


A security interest is a legal concept commonly seen in car loans, where a borrower grants a lender the right to repossess the car if the borrower fails to make monthly payments. This article will explore the basics of security interests, including the essential elements of a security agreement and the process of perfecting a security interest. Additionally, we will discuss fraud involving security interests and the potential consequences for those involved.

Understanding Security Interests

In the context of a car loan, a security interest is established when a borrower signs a written security agreement with a lender. This agreement is governed by the Uniform Commercial Code and must meet three essential elements:

  1. The security agreement must have a specified value.
  2. The borrower must be the owner of the collateral being secured.
  3. The borrower must sign a security agreement that specifically identifies the property being secured.

Once the security interest is established, the lender must take steps to perfect it by filing the agreement at the appropriate governmental office.

An Example of a Security Agreement

Let’s consider an example to illustrate how a security interest works. Joe obtains a $15,000 loan from a bank to purchase a new car. Unfortunately, he loses his job and can no longer make the monthly payments when the loan balance reaches $7,500. As a result, the bank repossesses the car and sells it to recover the remaining debt. Once the car is sold, Joe no longer owes anything on the loan, and the security interest is considered satisfied.

Fraud Involving Security Interests

Fraud involving a security interest is a serious offense that can result in criminal charges. In New York, fraud involving a security interest is classified as a class A misdemeanor, punishable by up to a year in jail, a fine, or probation. The governing statute for this offense is New York Penal Law Section 185.05.

Under this statute, a person can be found guilty of fraud involving a security interest if they enter into a security agreement with the right to sell the collateral and subsequently sell or dispose of the property without accounting for the proceeds to the lender. If the person does not have the right to sell the collateral, they cannot sell or dispose of it in a manner prohibited by the security agreement.

An Example of Fraud Involving a Security Interest

Let’s consider another example to understand how fraud involving a security interest can occur. Joe borrows $20,000 from Charlie, pledging his 2015 Corvette as collateral. The loan agreement specifies a payment schedule of $1,000 per month, and Joe retains possession of the car with the authority to sell it according to the security agreement. Eddie, unaware of the security interest, offers Joe $40,000 for the Corvette at a car show. Joe accepts the offer and keeps the money without informing Eddie about the security interest or Charlie about the sale. Despite continuing to make his monthly payments to Charlie, Joe can still be charged with fraud involving a security interest.

Consequences and Legal Representation

A conviction for fraud involving a security interest can have significant consequences, including negative impacts on employment, education, and housing opportunities. It is crucial to understand your rights and seek legal representation if you are charged with this offense. Our law firm specializes in handling fraud and white-collar crime cases and can provide expert guidance and representation. If you find yourself facing criminal charges related to fraud or deceit, contact us immediately at 888-981-9127 to protect your rights and explore your legal options.


Security interests play a vital role in loan agreements, particularly in the context of car loans. Understanding the elements of a security agreement and the process of perfecting a security interest is essential for both borrowers and lenders. Additionally, being aware of the potential consequences of fraud involving security interests and seeking legal representation when necessary can help protect individuals facing criminal charges. If you require assistance with a fraud-related case, do not hesitate to reach out to our experienced attorneys.