Which scheme did Zane engage in when using the same collateral to secure multiple loans from different lenders before liens were recorded?

• A. Sham loan
• B. Daisy chain
• C. Linked financing
• D. Double-pledging collateral

Answer: (D)

Double-pledging collateral is when the same asset is pledged to secure more than one loan from different lenders. Here, Zane used the same collateral to back multiple loans before any liens were recorded, so each lender would believe their loan has a valid priority claim to that asset. In reality, there are multiple, competing claims, which can leave lenders with little recourse if the borrower defaults and the asset can’t satisfy all debts. This misrepresents the asset’s encumbrance and facilitates obtaining funds under false pretenses, making it a fraudulent financing tactic. Other terms describe different fraud patterns that don’t involve pledging the same collateral to multiple lenders.