Additional pilot rejected by lender

L

Ly Tran

Filing Flight Plan
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May 19, 2022
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L.Tran
Hello everyone,

My friend is buying an airplane and we having an issue right now. I’ll try to explain it short:

- I am a private pilot.
- My friend is a student pilot, buying and financing the aircraft.
- My friend can not be PIC yet so I will be PIC. Insurance approved both of us as designated pilots.
- The lender now said they will not allow that and asked to remove my name out of the insurance policy, unless: I am his CFI, or have to be on the loan.

So, my question are:
- Does it make sense at all? What happened to people whose bought airplane but only let others fly it?
- Any workaround ideas?
- Any lender that does not have this policy?

Thank you!
 
If you're committed to this lender, I'd call an attorney familiar with banking laws in the state and ask them if such a restriction is legal. I suspect it is not. The plane is insured, if anything happens, the bank is protected. It isn't being used commercially, the insurance policy is likely recreational/(personal) business. If it isn't a written restriction in the loan docs, it also isn't legally enforceable, so you could go ahead and be removed for now, then add back in after the loan is closed.

Sometimes businesses like to have policies about stuff they don't know better about. The key is knowing whether it is something that would hold up in court.
 
I think what the insurance doesn’t like is you being named as a holder of the policy. If a wind storm flips the plane, the insurance settlement will be made in both names on the policy. Buy a renters insurance policy or buy into the plane.
 
Jeff Oslick said:
If you're committed to this lender, I'd call an attorney familiar with banking laws in the state and ask them if such a restriction is legal. I suspect it is not. The plane is insured, if anything happens, the bank is protected. It isn't being used commercially, the insurance policy is likely recreational/(personal) business. If it isn't a written restriction in the loan docs, it also isn't legally enforceable, so you could go ahead and be removed for now, then add back in after the loan is closed.

Sometimes businesses like to have policies about stuff they don't know better about. The key is knowing whether it is something that would hold up in court.
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Get an attorney and force the lender to capitulate on their demand. Good luck with that. States don’t write many consumer protection laws concerning aircraft loans.
 
Clip4 said:
I think what the insurance doesn’t like is you being named as a holder of the policy. If a wind storm flips the plane, the insurance settlement will be made in both names on the policy. Buy a renters insurance policy or buy into the plane.
Click to expand...
That's not an issue. With secured loans, lenders require that insurance policies name them as (the specific term varies a bit) as payees for insured loss of the collateral. The dual payee arrangement is standard. That's true with any secured loan I've seen.

i don't know what the lender's issue is so I have no idea how to address it.
 
Are you going to be one of the owners? Usually, the lenders want all the owners listed on the loan.

But, I've had goofy lenders before. The AOPA MNB/NationsBank/MBNA/BOFA loan group (same folk, the bank keeps getting sold) hook you in pretty quickly but they're a customer service disaster. There were goofy charges on my loan I never could get an explanation on. When they finally ****ed me off enough that I paid the loan off early (that's another story), I found out this goofy charge was actually a credit that had been rolling forward month after month for years.
 
Either get your student pilot friend to get a policy with an open pilot clause (allows any certificated pilot to fly the plane with the owner permission), or stay off the policy until the loan closes, then ask the ins co what it would cost to add you as a listed pilot, usually a few hundred bucks for a $200k plane.
 
Lender restrictions are state specific. In general they are free to impose whatever requirements they want unless some regulation prohibits it, which outside autos and residence contracts are usually pretty minimal. @midlifeflyer and @455Bravo are giving good advice.
 
BTW, I've seen something similar on the insurance end. Insurers refusing to issue policies to non-pilot owners. Complete speculation, but I wonder if there is a connection to a weird lawsuit pending where an insurer is trying to void coverage of a FalconJet which crashed on takeoff while being flown by the non-pilot "owner" and a pilot who (the insurer claims) was not qualified for single-pilot ops. AIN link.

(What makes it especially weird is that there was no "open pilot" or other clause requiring minimum pilot qualifications.)
 
It sounds as if the lender is a little risk adverse and is assuming that you as a non CFI are going to be acting as the legal PIC while your student pilot buddy does the flying and maybe provide flight instruction. Mind you, that is some creative reading between the lines on my part.
 
SkyDog58 said:
It sounds as if the lender is a little risk adverse and is assuming that you as a non CFI are going to be acting as the legal PIC while your student pilot buddy does the flying and maybe provide flight instruction. Mind you, that is some creative reading between the lines on my part.
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Or the prospective plane owner wants his private pilot buddy to take a hike and invented the story.
 
SkyDog58 said:
It sounds as if the lender is a little risk adverse and is assuming that you as a non CFI are going to be acting as the legal PIC while your student pilot buddy does the flying and maybe provide flight instruction. Mind you, that is some creative reading between the lines on my part.
Click to expand...
We can do a lot of speculating on this. With a straight secured loan, other than simply being repaid, a bank is typically only interested in protection of the collateral. That means insurance. Basically, if the rusk is insured, the bank doesn't care. If the insurer blesses the arrangement, a bank generally doesn't care. And many times, the provisions protecting the bank will apply even if the policy is violated by the insured.

just don't know enough to understand,
 
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