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NY Penal Law § 185.05: Fraud Involving a Security Interest

July 5, 2020 Federal Criminal Attorneys

If another individual has a security interest in property that you own, then you are not allowed to sell it without accounting to the secured party the proceeds of such sale. If you do sell without doing this, you would have committed a fraud crime.  You could face prosecution under New York Penal Law § 185.05 for fraud involving a security interest if you form a security interest in personal property to secure a monetary obligation and

  1. Under the security interest arrangement, you do have the right to sell the property but also the duty to account to the security party for the proceeds of such sale, and you sell or other dispose of the property without accounting to the secured party of the proceeds of the disposition, or
  2. Under the security interest arrangement, you are not within your rights to sell the property, and you sell or otherwise dispose of the property anyway in violation of the security agreement.

An Example

Luc borrowed $10,000 from his friend Jonas. As security for this loan, Jonas obligated Luc to put up his 1996 Mustang as collateral for the loan. Nevertheless, Luc was allowed to retain possession of the car. In keeping with the arrangement, Luc paid Jonas $500 per month as payments on the loan. One day, Gus saw Luc driving around in the car. He loved the car so much that he made an offer to Luc of $50,000 in cash for the car. Even though Luc loved his car, he opted to sell it to Gus. Luc did not tell Jonas about the auto sale, and he also did not tell Gus about the loan collateral arrangement that he had with Jonas. Luc carried on making his regular payments to Jonas. Luc could face prosecution for fraud involving a security interest, because he failed to disclose to Jonas that he sold the car.

Offenses that are Related

Fraud in Insolvency: New York Penal Law § 185.00

Fraudulent disposition of mortgaged property: New York Penal Law § 185.10

Fraudulent disposition of property subject to a conditional sale: New York Penal Law § 185.15


Fraud involving a security interest is categorized as a class A misdemeanor. If you are convicted of this offense, the judge may sentence you to a  jail term of up to one year. You might also receive a probation sentence of up to 3 years and be ordered to pay a fine.



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