Don graduated from a prestigious east coast university in May 2012. His parents could not pay for all his college education and so borrowed $75,000 in student loans. After graduation, Don landed a great job with the accounting firm of Dewey, Cheatham and Howe. They started him off with a six-figure salary. Don enjoys his new job and enjoys his newfound credit rating even more. Don wants to reduce his carbon footprint but not at the risk of style, so he goes out and buys a new $90,000 Tesla automobile putting the $40,000 he saved up as a down payment and borrowing the rest from First Auto Bank. He signs a security agreement dated October 1, 2012, with First Auto Bank which allows the bank to file a financing statement. Then Don starts looking at condos and eventually finds a loft for the price of $700,000. He talks to a mortgage broker about financing the purchase and the mortgage broker tells him that he has excellent credit but that he would have to come up with a 10% down payment and so he could finance 90% of the condo price through a first mortgage. Don explains that he has no savings since he put all his savings down on his car. The mortgage broker goes online and does a quick search of the UCC database with the NYS Dept of State and informs Don that there is no financing statement on file. He suggests to Don that he go to another bank and borrower the $70,000 down payment using his Tesla as collateral. Don doesn’t really feel right about it since he’s sure that he gave First Auto Bank a security interest in the Tesla. However, he figures that he makes enough to pay both loans and the mortgage so what’s the harm. He then goes out and borrows $70,000 from Second Auto Bank again using his Tesla as collateral. Second Auto Bank immediately files a UCC-1 with the NYS Dept of State on October 1, 2012. First Auto Bank, after an audit, realizes its mistake and files a financing statement against the Tesla on November 1, 2012.
Assume Don loses his job and fails to make any payments on his car loans. First Auto Bank repossesses the Tesla and sells it at a commercially reasonable auction for $50,000. Explain which bank receives the proceeds of the sale and what further rights, if any, do each of the banks have against Don?
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