I'm Selling My Coin Laundry.
How Should The Buyer's Debt Be Secured?

     It's a scientific fact that green is easy on the eyes.  That
may  partly  account for the fact that sellers prefer to  receive
cash,  bank,  heavy  bread, bones, buckage,  a  bundle,  cabbage,
lettuce,  cake,  heavy coin, jack, lace, dough,  copper,  dinero,
doowacky,  do  re mi, gold or loot, rather than the  buyer's  IOU
when selling a coin laundry.

      If,  however,  as a seller, you are merely receiving  chump
change,  birdseed, chickenfeed or peanuts as a down payment,  and
must take back the buyer's promissory note for the balance of the
purchase price, read further.

      When you obtain the buyers' promissory note, in the eyes of
some buyers, you are receiving a promise to pay in the event  the
coin  laundry is successful and the buyer believes he should  pay
you. On the other hand, if you hold a security interest in assets
that  the buyer wants to retain, the buyer will be encouraged  to
make the payments to avoid loss of these assets.

      A  security  interest  limited  to  equipment  may  not  be
sufficient  to induce the buyer to remember you on payment  days.
If  the equipment is outdated and needs replacement, there may be
little  incentive  for  the  seller to  be  concerned  with  your
security  interest, particularly if the buyer  maintains  a  bank
balance  in  the  low  two figures.  If  you  foreclose  on  your
security  interest  and  remove your  collateral  from  the  coin
laundry,  you will likely recover very little at public sale  and
can  look forward to being enmeshed in litigation to recover  the
balance due.

      On  the other hand, if you hold a security interest in  the
lease  of the coin laundry location as well as the equipment,  in
the event of non-payment, you will have a right to foreclose upon
the  entire operation and be in a position to resell the business
as a turn-key operation.

      Consider the opinion of the 9th Circuit Court of Appeals in
the  matter of In re Kim, 130 F.3d 863 (9th Cir. 1997), a  matter
involving  Ardmor  Vending  Co., a distributor  of  coin  laundry
equipment in California.  The Court stated:

                "Holding  both the lease and  equipment
          gave  [Ardmor Co.] a package that  was  worth
          more  than  if  the two . . . .  were  valued
          separately . . . . This is why [Dave] Weiner,
          Chief  Executive  Officer  of  [Ardmor  Co.],
          stated  that  in his many years of  building,
          equipping  and  selling laundromats  and  dry
          cleaners, his company routinely took security
          interests in both the equipment it  sold  and
          the lease where the equipment was installed -
          -  so  that  in  the event  of  default,  his
          company can sell them as a package."

      Distributors of coin laundry equipment routinely obtain  an
assignment of the lease as collateral security in addition  to  a
security  interest  in  the  equipment  sold,  if  financing  the
purchase  of a substantial quantity of equipment.  As the  seller
of  a  coin laundry financing the purchase of the entire business
should you do less in securing the buyer's debt?

      There  are  many  issues to be considered  in  crafting  an
appropriate assignment of lease as collateral security  but  with
the  right document, a seller will be well protected and a  buyer
will  not likely object, particularly at the outset when he wants
to assure you that he will make the payments as required.

[This column is intended to provide general information only  and
is  not intended to provide specific legal advice; if you have  a
specific  question  regarding the  law,  you  should  contact  an
attorney  of your choice.  Suggestions for topics to be discussed
in this column are welcome.]


Reprinted from New Era Magazine
Myles M. Mattenson © 1998-2002